The Trump Administration wants a lower dollar to make US exports more competitive, and right now the dollar is declining, but for the wrong reasons. After reaching a level in 2024 that was two standard deviations above its average value since 1973 (according to Federal Reserve data), it has declined recently against a basket of other currencies, including gold. This has prompted renewed talk about the US dollar losing its status as the world’s reserve currency, the currency in which most global transactions are defined and the currency in which world reserves are held. That would have substantial adverse consequences for our nation, and the ability of the USA to borrow more cheaply would be called into question.
Most economists argue that the dollar’s reserve status is safe for now, mainly because there is no other suitable candidate to replace it. However, this does not mean its value could not continue to decline, and many expect exactly that to continue to happen.
The erosion of the dollar’s value is likely to be a gradual process. In 2025, the price of gold (which is also the value of the dollar as priced in gold) has risen steadily and surprisingly by almost 25%. Part of this is a natural result of the over valuation of the dollar compared to normal times, but another large part is the uncertainty created by the US tariff policies.
Going into 2025, most investors had 80% of their “equity eggs” in the US basket because of the perceived “exceptional ism” of the US economy and stock market. That “exceptionalism” is reverting to normal which suggests that an increasing number of US investors will be including more international stocks, and that more non-US investors will be moving out of US assets. This is a perfect storm. Investors should be aware and review their portfolio’s asset allocation by geography.
According to a new book by economist Kennett Rogoff OUR DOLLAR YOUR PROBLEM, Rogoff says he does not think “that dollar dominance will fall sharply tomorrow, but Trump has been an accelerant. Parts of the world were already moving away from the dollar. Now they’re moving faster.”
The opinions expressed in this Commentary are those of Baldwin Investment Management, LLC. These views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. The reported numbers enclosed are derived from sources believed to be reliable. However, we cannot guarantee their accuracy. Past performance does not guarantee future results. We recommend that you compare our statement with the statement that you receive from your custodian. A list of our Proxy voting procedures is available upon request. A current copy of our ADV Part 2A & Privacy Policy is available upon request or at www.baldwinmgt.com/disclosure.
Richard K. May, Managing Director (RKM), Business Development
Richard founded his financial advisory firm in 1980, which was one of the early fee-only advisors in the industry. He received his B.A. from Princeton University and his M.B.A. from the University of Michigan.
In 2007, Richard founded the West Chester LLC, a private equity company that promoted and funded business start-ups and public projects in the Borough of West Chester. In 2011, he co-founded the Uptown! Entertainment Alliance and the Uptown! Bravo Theatre, LLC. Together they purchased and rehabilitated the National Guard Armory, and then opened the Uptown! Knauer Performing Arts Center in 2016. Richard has served on the boards of many non-profits and community service organizations over the years.