Is the U.S. dollar the least worst fiat currency? Strategists are debating the greenback\'s future in a world grappling with economic uncertainty and shifting geopolitical alliances. While concerns about de-dollarization and the dollar\'s weakening position are mounting, the reality is more nuanced.

Last week the DXY dollar index, which measures the strength of the currency against a basket of its biggest peers, fell 2.8 per cent. This was its seventh-worst performance. The U.S. dollar’s position at the top of the world’s monetary system has never looked more tenuous. But is it really on the verge of collapse?

One perspective suggests the dollar retains a relative advantage. Luckily for the United States and unfortunately for the dollar’s rivals, there isn\'t a clear alternative ready to dethrone it. Many argue that despite its flaws, the dollar benefits from the strength of the U.S. economy and its relative stability compared to other nations. The depth and liquidity of U.S. financial markets continue to attract global investors, supporting demand for the dollar.

However, challenges persist. Trade-related uncertainties, ballooning fiscal debt, and weakened confidence about enduring U.S. exceptionalism have weighed on U.S. assets, with the dollar facing headwinds. The US dollar’s weakness against its major peers during the first quarter of 2025 is anticipated by Goldman Sachs Research to persist.

Adding fuel to the debate, the US dollar is on the verge of losing its throne as the world\'s reserve currency, or de-dollarization, is the question that has been agitating geopolitical and economic circles. Some nations are exploring alternative currencies for trade and investment, raising concerns about the dollar\'s long-term dominance. Earlier this week, Deutsche Bank warned of potential shifts in the global currency landscape.

Despite these concerns, some experts maintain a more optimistic outlook. The dollar will remain a force to reckon with over the remainder of this year and into the next as U.S. interest rates rise and the economy outperforms its peers, reinforced by strong economic data. As Paresh Upadhyaya, director of fixed income and currency strategy at Amundi, the biggest European asset manager, said: Over the next 12 months, the US economy will likely…[remain resilient]."

Ultimately, whether the U.S. dollar is the "least worst" fiat currency is a matter of perspective and depends on how effectively the U.S. addresses its economic and geopolitical challenges. The debate is likely to continue as the global financial landscape evolves.