On July 3, 2025, the U.S. House of Representatives approved President Donald Trump’s sweeping budget and tax bill. The $3.4 trillion package, informally dubbed the “One Big Beautiful Bill”, is making waves far beyond Capitol Hill. Its implications are now being debated by politicians, economists, and investors around the world, many of whom are voicing concern not just about the fiscal health of the United States, but about the future of the U.S. dollar.
So what lies ahead for the dollar, and is talk of the end of its global dominance really justified?
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How Will the U.S. Economy Change After the Reform?
Trump’s new legislation marks the most significant overhaul of the U.S. tax system since his own 2017 reform. It includes massive tax cuts totaling over $4.5 trillion, a major increase in defense spending, and deep reductions to social programs. Medicaid, food assistance, and environmental initiatives introduced during Joe Biden’s presidency are set to be dramatically scaled back.
On one hand, these measures could serve as a powerful stimulus for economic growth and offer relief to the middle class. On the other hand, critics warn that they could sharply increase income inequality and place a heavier burden on the federal budget.
Debt and Deficit: Warning Signs
The bill immediately raised the debt ceiling by $5 trillion, eliminating the short-term risk of a government default. However, long-term concerns have intensified among financial analysts and credit rating agencies. According to the Congressional Budget Office (CBO), the law will expand the federal budget deficit by $3.4 trillion over the next decade — on top of an already staggering national debt that now exceeds $36 trillion.
Such a surge in borrowing inevitably leads to higher interest payments, potentially shaking investor confidence. Financial markets are already witnessing the return of so-called “bond vigilantes” — investors who demand higher yields in response to what they see as fiscal irresponsibility. This could lead to higher borrowing costs for the government and slower economic growth.
Moody’s Downgrade and Growing Fiscal Risks
Earlier this year, in spring 2025, Moody’s downgraded the U.S. credit rating from its top-tier AAA status to AA1. The primary reason: a continued failure by lawmakers to rein in growing deficits. Moody’s analysts have warned that without decisive action, the U.S. budget deficit could reach a critical 9% of GDP by 2035.
This scenario raises the real possibility of another downgrade and a further erosion of global confidence in U.S. government bonds. The higher the debt burden grows, the greater the risk that the dollar will lose its role as the world’s primary safe-haven currency.
Currency Market Reactions: The Dollar Under Pressure
The dollar has already been showing signs of strain amid increasing financial instability. Since the beginning of the year, it has lost about 9% of its value against a basket of major world currencies. By the end of June 2025, the U.S. Dollar Index recorded its worst first-half performance since the 1970s.
Experts largely attribute the dollar’s decline to mounting investor anxiety over uncontrolled fiscal spending. In response, many countries are beginning to diversify their foreign reserves, further weakening the dollar’s dominance as the global reserve currency. If this trend continues, the international financial system may need to adapt to a new reality — one that could introduce fresh risks to global economic stability.
Possible Scenarios
So what comes next? Analysts are weighing several potential scenarios — each with distinct risks and benefits.
The first scenario involves a moderate devaluation of the dollar. This could help ease the U.S. debt burden and stimulate exports in the short term. However, it would also risk higher inflation and potentially damage the credibility of U.S. monetary policy.
The second scenario is a gradual de-dollarization of the global economy. More countries could begin conducting trade and holding reserves in alternative currencies, further reducing their reliance on the U.S. dollar. Given Washington’s growing fiscal challenges, this scenario is becoming increasingly plausible.
The third and most extreme scenario would involve the U.S. government imposing strict administrative controls, such as capital restrictions or forced repurchase of its own bonds. This would effectively end the dollar’s role as a freely traded reserve currency. While dramatic, most experts consider this outcome highly unlikely.
The Dollar Is Still Alive — But Its Monopoly Is Weakening
Despite growing concerns, the dollar remains indispensable to the global economy. The United States still hosts the world’s largest and most liquid financial markets, and alternatives like the euro or Chinese yuan have yet to gain broad investor confidence.
That said, Trump’s latest legislation does mark a turning point. It weakens the dollar’s monopoly and creates the conditions for significant shifts in the international monetary landscape. If the U.S. fails to stabilize its debt and restore market confidence, it risks losing some of the geopolitical and economic influence that comes with being the world’s reserve currency issuer.
Conclusion
Donald Trump’s tax reform is nothing short of a bold economic experiment. In the short term, it offers the U.S. economy a substantial stimulus and avoids the immediate risk of default. But the long-term outlook is far more uncertain.
What was meant to boost America’s economic strength may ultimately undermine its fiscal stability and erode the dollar’s reputation as the safest currency in the world. For the United States, this should serve as a wake-up call: How far can a nation rely on debt to drive growth before the consequences become irreversible?
