The Banking Executive Magazine - January 2026 Issue

Is There Life After the Dollar? •DOLLAR DOMINANCE FACES STRUCTURAL UNCERTAINTY. •MULTICURRENCY SYSTEM: RISK OR RESILIENCE? •ARAB BANKS MUST PREPARE STRATEGICALLY. For more than half a century, global financial stability has rested on a quiet assumption: that the United States would not only supply the world with liquidity through the dol- lar, but would also safeguard the in- stitutional architecture underpinning the international economic order. The dollar’s position as the principal reserve currency has provided pre- dictability to trade, capital flows, and sovereign finance. Yet the growing unpredictability of American policy- making has prompted a fundamental question for central bankers and pol- icymakers worldwide: is it prudent for the global system to hinge so heavily on a single national cur- rency? This question is no longer theoreti- cal. The asymmetry embedded in the dollar-based system has long been understood. To provide the world with dollar liquidity, the United States must run persistent current-ac- count deficits—importing more than it exports—while issuing debt instru- ments that foreign governments and institutional investors are willing to hold as reserves. The system works because US Treasury securities are considered safe, liquid, and backed by a deep financial market infrastruc- ture. In return, the United States ben- efits from consistently low borrowing costs and considerable fiscal latitude. It was this dynamic that led France’s former finance minister Valéry Gis- card d’Estaing to describe the dollar’s status as an “exorbitant privilege.” The phrase captured an enduring structural reality: the issuer of the re- serve currency enjoys advantages not available to other sovereign states. These advantages have allowed the United States to finance deficits at scale, drawing on global savings without facing the constraints typi- cally imposed on other economies. Yet such privilege carries implicit re- sponsibilities. As former People’s Bank of China Governor Zhou Xi- aochuan observed in the aftermath of the 2008 global financial crisis, global monetary stability ultimately depends on a currency issued by a sovereign whose domestic priorities may not always align with global in- terests. When national policy objec- tives diverge from systemic stability, the spillovers are felt far beyond the issuing country’s borders. In recent years, concerns about pol- icy unpredictability in Washington have intensified. Public tensions be- tween the US executive branch and the Federal Reserve, coupled with assertive foreign policy postures, have introduced a degree of uncer- tainty into the international financial environment. For many observers, these developments underscore a vulnerability inherent in the current ISSUE 205 JANUARY 2026 the BANKING EXECUTIVE 19