German Watchdog Warns Dollar’s Reserve Status Could Face Pressure

By Staff, Agencies

The global dominance of the US dollar could come under strain as early as this year, Germany’s financial regulator has warned, citing risks ranging from geopolitical turmoil to growing politicization of financial institutions.

In its annual outlook released Wednesday, the Federal Financial Supervisory Authority [BaFin] said the dollar may face funding stress and market doubts that could challenge its long-standing role as the world’s primary reserve currency.

BaFin President Mark Branson said there is a continuing risk that financial markets begin to question the dollar’s global status, particularly if political interference weakens international institutions and coordination during times of economic or financial crisis.

The warning comes after the dollar experienced its sharpest one-day decline in nearly a year. On Tuesday, the Bloomberg Dollar Spot Index posted its steepest fall since April of last year, when US President Donald Trump introduced a broad package of global tariffs.

BaFin also highlighted the danger of potential liquidity shortages triggered by geopolitical shocks, describing such scenarios as a particularly serious concern for global markets.

Meanwhile, Bloomberg reported this week that traders are increasingly betting on further dollar weakness amid uncertainty surrounding US economic and political policies. Market sentiment toward the dollar’s long-term outlook is said to be more negative than at any point since May 2025.

Trump has downplayed worries about the currency’s decline, saying the dollar is “doing great” and should be allowed to “find its own level.”

Data from the International Monetary Fund showed that the dollar’s share of global foreign exchange reserves fell to a 30-year low of 56.3% between April and June last year. However, the IMF said the drop was largely driven by valuation effects rather than deliberate efforts by central banks to reduce their dollar holdings.