US Dollar’s Global Role at Risk – German Regulator

Jan 30, 2026 at 03:45 PM

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Lanka Leader

The US dollar’s status as the world’s dominant reserve currency could come under pressure as early as this year, Germany’s financial watchdog has warned.

In its annual forecast published on Wednesday, the Federal Financial Supervisory Authority (BaFin) said the dollar faces growing risks from potential funding shortages, geopolitical shocks, and the increasing politicization of key institutions.

The warning comes after the dollar recorded its sharpest single-day decline in nearly a year. On Tuesday, the Bloomberg Dollar Spot Index — a major gauge of the greenback’s strength against other leading currencies — posted its steepest fall since April last year, when US President Donald Trump unveiled his broad global tariff agenda.

“The risk remains that markets will question the role of the US dollar as the global reserve currency,” BaFin President Mark Branson said. He cautioned that “drastic attempts to politicize institutions” could weaken international cooperation, particularly during periods of economic or financial stress.

BaFin also highlighted the danger of liquidity shortages triggered by geopolitical shocks, describing the risk as one “of particular importance” for global financial stability.

Meanwhile, market sentiment toward the dollar has continued to deteriorate. Bloomberg reported this week that traders were increasingly betting on further declines amid uncertainty surrounding US policy direction. According to the report, market pessimism about the dollar’s long-term prospects has reached its highest level since May 2025.

President Trump has downplayed concerns over the currency’s recent weakness, saying the dollar is “doing great” and should be allowed to “seek its own level.”

Data from the International Monetary Fund showed that the dollar’s share of global foreign exchange reserves fell to a three-decade low of 56.3% between April and June last year. However, the IMF said the decline was driven mainly by currency valuation effects rather than deliberate reductions by central banks.