Alan Rappeport

Global investors are baulking at US bonds. Talk of the dollar’s dwindling power is getting louder. Foreign governments are hauling their gold out of American vaults.

Almost two years into President Donald Trump’s second term, the world economy is increasingly seeking to distance itself from the United States. Concerns about a $40 trillion debt burden, the excessive use of sanctions to solve foreign policy problems and Trump’s penchant for pushing the limits of the rule of law are raising questions about the appeal of the US as a haven for global investment.

Despite pledges by foreign companies and nations to invest in the United States in many cases to curry favour with the White House capital is starting to seek alternative destinations.

“Geopolitical factors and US weaponisation of the dollar through financial sanctions are causing central banks and other official investors to attempt to diversify away from dollar assets,” said Eswar Prasad, the former head of the International Monetary Fund’s China division.

The US is not yet an investment pariah. Private investors are still pouring money into American financial markets and stocks, artificial intelligence infrastructure is booming, and no rival currency is poised to topple the dollar imminently.

In testimony before Congress on Tuesday, Treasury Secretary Scott Bessent said he remained confident in the credibility of the US financial system, arguing that bond auctions continue to operate successfully and that the dollar is still thriving as measured by its share of global transactions.

“The US is in fact the leader, and the leader does not fear competition,” Bessent said. “Competition makes us better.”

But cracks in America’s economic dominance are starting to show.

The most glaring example has been in the bond market. Yields have been soaring as investors, nervous about the mounting national debt, demand a higher rate of return on Treasury bonds. This week, the yield on the 10-year Treasury topped 5%, reaching its highest level since 2007.

With the US’s long-term fiscal situation looking shaky, some countries are starting to wonder if the US is a wise investment. This month, Norway’s sovereign wealth fund, the largest in the world, said it planned to reduce its holdings of US Treasuries as it looks elsewhere for stronger returns.

And then there is the future of the dollar.

Nearly 90% of global foreign exchange transactions are in dollars. But the share of dollars being held in central bank reserves has been steadily declining over the past decade, falling to 56% at the end of 2025 from 64% in 2015.

Last year, Christine Lagarde, the president of the European Central Bank, said erratic policymaking in the United States was setting the stage for a “global euro moment.”

The United States has taken advantage of the greenback’s special status to use it as a foreign policy tool, imposing stiff sanctions on adversaries such as Iran and Russia. As the United States ramps up its use of sanctions to resolve global conflicts, the permanence of the dollar as the world’s reserve currency has come into question with greater frequency.

Although the euro and China’s renminbi do not appear ready to overtake the dollar anytime soon, the emergence of central bank digital currencies, stablecoins and cryptocurrencies gives US adversaries new avenues to circumvent the American financial system when making international transactions.

China has been leading the development of a cross-border digital currency platform with Hong Kong, Thailand, the United Arab Emirates and Saudi Arabia that would allow money to move more quickly and with lower fees than what is possible with traditional banking transactions. A similar cross-border payments project led by some Group of 7 major industrialised nations and Western financial institutions is also in development but is not as far along as China’s initiative, which is known as mBridge.

Russia and India said last week that they are working on a plan that would let them use central bank digital currencies to settle international trade payments. Such a mechanism would allow the countries to expand their trade relationship and reduce reliance on Western financial institutions that can be targeted by US sanctions.

“The story of moving away from the dollar is one of the oldest stories that exists,” said Josh Lipsky, the chair of international economics at the Atlantic Council. “Countries have thought about working around the dollar, and technology is making it a little cheaper and easier to do it than before.”

While some countries are focused on digital money, others are going for the gold as they fret about the stability of the US.

In 2025, world international reserves held in gold surpassed foreign official holdings of US Treasury securities. This year, the price of gold exceeded $5,000 per troy ounce for the first time in history as central banks stocked up on the metal amid intensifying global conflicts and concerns over inflation.

Demand for gold is so high that some countries also want to keep theirs closer to home. With geopolitical unrest rising and Trump lobbing tariff threats against European allies, some have even taken the rare step of relocating the gold they keep in vaults at the Federal Reserve Bank of New York.

“It’s like the countries don’t trust the US,” said Daniel Tannebaum, who served at the Treasury Department’s Office of Foreign Assets Control and as the OFAC compliance coordinator at the Federal Reserve Bank of New York. “I do think that there is a fear factor.” That fear factor is also creating blowback for American companies that are trying to do business abroad.