Why the Dollar’s Decline Could Become an Abrupt Confidence Shock

The dollar is facing its most sustained reserve-share challenge in decades, but the evidence does not show that a collapse is imminent. The more consequential risk is a mismatch: central banks may be spreading exposure across several assets and currencies without creating a single replacement with the dollar’s liquidity, openness, and supply of safe assets.

That is the concern Barry Eichengreen has highlighted. The UC Berkeley economist and monetary historian says he is now more worried about an abrupt loss of confidence before alternatives are ready to absorb the shift.

The dollar’s reserve share has fallen steadily over the long run

The clearest evidence is the dollar’s declining share of official foreign-exchange reserves. The Federal Reserve reported that the dollar represented about 58% of disclosed global reserves in 2024, down from more than 70% around the turn of the century.

The latest IMF COFER data show why the trend needs to be interpreted carefully. The dollar’s share increased from 56.42% in 2025 Q4 to 57.13% in 2026 Q1. The euro fell from 20.38% to 20.03%, while the renminbi edged up from 1.95% to 1.99%. 2

In other words, the long-term direction is diversification, but the quarterly data are not a straight line. Exchange-rate movements can also change the reported share of reserves even when central banks do not make large allocation decisions. The IMF has specifically warned that valuation effects can materially affect these comparisons. 812

This is not yet a euro-or-yuan takeover

A falling dollar share does not automatically mean that another currency is inheriting its role. The euro remains a distant second in official reserves, while the renminbi’s share is still below 2%. 2

The IMF’s COFER framework tracks the dollar, euro, renminbi, yen, pound sterling, Australian dollar, Canadian dollar, Swiss franc, and other currencies. 9 That structure is consistent with a more fragmented reserve system in which managers diversify across a group of smaller alternatives rather than choose one successor.

This distinction matters. A reserve currency must offer more than a denomination for trade invoices. It generally needs deep and liquid financial markets, dependable institutions, broad convertibility, and a large supply of assets that international investors can hold in size. The available data show diversification, not the emergence of a replacement with comparable reach.

Eichengreen’s warning is about speed, not just direction

Eichengreen’s argument is more specific than the familiar claim that the dollar will eventually lose its dominance. His concern is a discontinuity: confidence could weaken suddenly while alternative currencies remain too limited to take over smoothly.

In an interview summarized by Kitco, Eichengreen said he had become “much more worried” about an abrupt change in which confidence in the dollar is lost before alternatives have time to step up. He dated the shift in his concern to April 2, 2025, when the Trump administration announced its tariff program.

That date is an expert interpretation, not proof that the tariff announcement caused a reserve exodus. But it identifies the mechanism at issue: reserve-currency status depends partly on confidence in predictable policy, the rule of law, central-bank independence, and the functioning of Treasury markets. Political decisions that make those foundations appear less reliable could matter even if the dollar’s network advantages remain intact.

Regional de-dollarization is real—but its global meaning is limited

Countries in the Commonwealth of Independent States have increasingly promoted settlement in national currencies. Russian President Vladimir Putin said in October 2025 that mutual settlements among CIS countries were conducted “almost entirely” in national currencies. 18 A later statement from the CIS executive council put the share at 96% for the CIS in 2024–2025.

These figures are important evidence of regional efforts to reduce dependence on Western currencies. They should not, however, be treated as independently audited evidence of a global reserve-currency shift. Local-currency settlement within a regional trading bloc does not by itself create a universally usable reserve asset or replicate the dollar-based financial infrastructure used worldwide.

What would turn gradual diversification into a confidence shock?

The main warning sign would not be a single quarterly decline in the dollar’s reserve share. It would be a combination of deteriorating institutional confidence and limited alternatives.

A sudden shock could become more disruptive if reserve managers concluded that:

• U.S. policy had become less predictable;
• the Federal Reserve’s independence was in doubt;
• Treasury markets were becoming less reliable or liquid; or
• holding dollar assets carried materially greater political or sanctions risk.

Even then, diversification would not necessarily mean a wholesale move into the euro, renminbi, or gold. The more plausible near-term outcome is a broader basket of currencies and assets. That may reduce dependence on the dollar gradually while making the global system more fragmented.

Why the 2026 Jackson Hole meeting matters

Federal Reserve Chair Kevin Warsh’s first Jackson Hole keynote is scheduled for August 28, during the August 27–29, 2026 symposium. The official theme is “Financial Innovation: Implications for Payments and Policy.”

The event matters because payment technology, stablecoins, tokenization, cross-border settlement, and central-bank digital-currency decisions could influence how easily the dollar remains the preferred unit of account and settlement. But a speech cannot determine reserve-currency status on its own. Monetary credibility, open capital markets, liquid safe assets, and institutional trust are more fundamental.

The bottom line

The evidence points to a gradual weakening of the dollar’s reserve position, not an imminent collapse. Its share has fallen from above 70% around 2000 to 57.13% in 2026 Q1, yet it remains far ahead of the euro and renminbi. 2

The strongest version of Eichengreen’s warning is therefore a tail-risk argument: the dollar could suffer an abrupt confidence shock before any alternative is capable of replacing it. The world may be moving toward a more diversified monetary system—but diversification is not the same as a ready successor.