It is true that Xi’s point was made in a closed forum back in 2024, but the Chinese authorities only released it this year. It is also true that Trump is the first US President to talk down the dollar in almost four decades.
There is a complex set of forces at play. Before we unpack that, here is a quick flashback on the various historical cycles of the US dollar. The earliest point traces back to president Richard Richard Nixon’s shock announcement in 1971 to suspend the gold standard and the dollar’s convertibility into gold under the Bretton Woods Agreement.
Since then, the dollar has had seven major cycles. One, 1971–1978: Volatility after leaving the gold standard. Two, 1978–1985: The dollar appreciated significantly. Three, 1985–1992: The Plaza Accord and planned depreciation of the dollar in collaboration with trade partners.
Four, 1992–2002: A strong-dollar era, with the US as the sole global hegemon. Five, 2002–2012: The dollar lost value as the US underwent significant monetary easing while emerging markets rose. Six, 2012–2022: A decade of strengthening that culminates in highs around 2022. Seven, 2022–2026: The dollar reached new peaks, but a downtrend began in mid-2022 that accelerated in 2025.
Today, the DXY dollar index (against a basket of six currencies) is about 13% off its 2022 peak, 30% above its 2008 floor and bang in the middle of the full period trend. At the same time, gold, which has sometimes been called the ‘anti-dollar,’ and other metals like silver, copper and platinum have reached their all-time peaks recently (with a recent sell-off). This has led to some analysts calling it “debasement” of the dollar.
In the context of currencies, debasement is a serious term. All four of the following conditions need to be met for that term to apply: One, a strong increase in money supply, usually measured by M2 growth; two, large fiscal and current account deficits; three, easy monetary conditions, usually marked by a policy of quantitative easing; and four, low confidence in the economic management of the country.
On these four metrics, here are the facts for the US today. Annual money supply growth as measured by M2 is 5%, which is quite normal. The US does indeed run a large fiscal deficit (about 5.5% of GDP projected for 2025-26), with its national debt at $39 trillion. An unusual circumstance is that $9 trillion of this is due for refinancing in 2026, which may put upward pressure on bond yields.
The US is operating under moderately tight monetary conditions, with a combination of positive real rates and quantitative tightening. The recent period has accelerated the path of a ‘normalizing’ dollar and the US is not at risk today of currency debasement. It is mostly sentiment around US economic management that has weakened the dollar.
Over the past year or so, the Indian rupee has been among the currencies that have lost ground to an otherwise weakening dollar. Contrary to popular belief, despite a sharp fall in the exchange rate in 2025, the rupee has only depreciated at a compounded annual rate of 3.1% over the last 3 years.
The worst three-year period for the rupee in the last 25 years was 2011-13, a phase that included the ‘taper tantrum’ and the dollar’s return to base, which also signalled a period of dollar strength.
Today, India’s economic growth is strong and we have had sustained fiscal consolidation after the pandemic. Relative inflation against the US is now the lowest in 25 years, with a declining trend.
Given a new trade agreement with the US that should soon be in place, prospects for the rupee-dollar exchange rate appear positive, and it could potentially perform better than what the inflation difference between the two would suggest. Also, the Reserve Bank of India has the highest ever foreign exchange reserves of over $700 billion to push back against any untoward fall of the rupee.
So where does the dollar go from here? An increase in the US’s blended average tariff rate from low single-digits to double-digits puts upward (not downward) pressure on the dollar. Worries about substantial upcoming Treasury refinancing could potentially weaken the dollar in 2026.
While international central banks may diversify away from the dollar, which may lose some of its dominance, it is a long way away from being dethroned as the world’s reserve currency. The share of bilateral trade conducted outside the dollar could rise from a small percentage to a higher figure.
Even if many of the social aspects of Trumpism survive his presidency, the view of the dollar’s reserve-currency status as a burden rather than ‘extraordinary privilege’ is unlikely to. China may be trying to project its renminbi as a reserve currency, but the institutional credibility needed for that is at least a decade away.
Like the past five or so presidential terms before this one, the US will sooner or later return to the ‘strong dollar’ stance that has characterized the country for the last 40 years. You cannot make America great again with a debased dollar.
P.S.: “Our greatest glory is not in never falling, but in failing to rise again,” said the enigmatic Confucius.
The author is chairman, InKlude Labs. Read Narayan’s Mint columns at www.livemint.com/avisiblehand.
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