Donald Trump has created a question mark over the US dollar’s role as the world’s reserve currency. Could the euro provide the answer?

Despite the long-held ambitions of the Europeans to displace the dollar’s primacy in global financial transactions, that has always appeared improbable – until Trump upended the global order in this, his second term as US president.

US President Donald Trump’s trade war is undermining perceptions of American exceptionalism.Credit: AP

Trump’s tariffs, his assaults on globalisation and global institutions, the US withdrawal of global humanitarian aid, his disregard for the US judiciary and court decisions, his flouting of the US Constitution and his treatment of the nation’s closest allies are undermining perceptions of American exceptionalism and the dollar’s haven status.

A proposal within the “One Big Beautiful Bill” – the mega (and ultra-expensive) budget bill Republicans are still trying to finalise – to raise taxes on foreign investment is another deterrent to acquiring US assets and US dollar exposures.

Section 899 of the bill would increase US taxes on dividends and interest income by five percentage points each year for four years. Both foreign direct investment and portfolio investment would be hit.

The US is the world’s largest destination for foreign investment. Foreign investors own about 20 per cent of all US equity and bond securities and the US attracts about 26 per cent of global foreign direct investment. If Section 899 were enacted, it would not only deter new investment in the US, but could also trigger an exodus of existing capital and put more pressure on the dollar.

The dollar has depreciated about 10 per cent this year – slightly more against the euro – even as the interest rates on longer-duration Treasury bonds have risen. That’s a reversal of the historical norm, where turbulence and uncertainty – even volatility generated from within the US – has seen capital flow towards the........

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