Is the Dollar's 'Safe Haven' Status Under Threat?

For the first time in decades, America's closest allies are questioning whether US assets are truly "safe." After President Donald Trump threatened to seize Greenland and impose tariffs on eight European nations, AkademikerPension, a Danish pension fund, announced plans to divest from US Treasuries. Greenland's SISA Pension fund is reportedly considering similar moves.

These aren't massive selloffs—yet. But they represent something potentially more significant: the first cracks in the foundation of dollar dominance that has underpinned global finance since World War II.

The Unthinkable Becomes Thinkable

US Treasuries have long been the world's ultimate safe haven. During the 2008 financial crisis, investors fled to Treasuries. During the pandemic, they did the same. The logic was simple: no matter what happens globally, the US government will pay its debts, and you can always find someone to buy your Treasury bonds.

That faith persisted even when America made controversial decisions abroad. But Trump's recent threats introduce a new variable: political weaponization of economic relationships with allies. When the president of the world's largest economy threatens territorial seizure and punitive tariffs against democratic allies, it forces a uncomfortable question—are US assets really apolitical?

Alicia Garcia-Herrero, chief Asia-Pacific economist at French investment bank Natixis, puts it bluntly: "Trump injects political risk into US assets."

China's Patient Strategy Gains Momentum

This allied uncertainty couldn't come at a worse time for dollar dominance. China has been steadily reducing its Treasury holdings since 2022, part of a broader "de-dollarization" strategy. Russia, cut off from dollar systems after invading Ukraine, has accelerated alternative payment mechanisms. Saudi Arabia increasingly accepts non-dollar payments for oil.

These moves were previously dismissed as ineffective challenges to an unshakeable system. But when Danish pension managers—representing some of the world's most conservative institutional money—start questioning Treasury investments, it suggests something fundamental may be shifting.

Gold markets are already reflecting this uncertainty. Prices have surged to over $2,800 per ounce, hitting record highs. Central banks purchased 1,037 tons of gold in 2024, the second-highest annual total on record, according to the World Gold Council.

The Ripple Effects Begin

For global investors, this creates unprecedented complexity. If Treasuries carry political risk, where do you park $26 trillion in global reserves and institutional assets? The alternatives aren't obvious. European bonds offer lower yields and their own political uncertainties. Japanese bonds yield virtually nothing. Chinese assets remain largely inaccessible to many institutional investors.

This uncertainty is already affecting currency markets. The euro and yen have shown unusual strength against the dollar in recent weeks, despite their own economic challenges. Bitcoin and other cryptocurrencies have surged as investors seek non-governmental alternatives.

For American companies, the implications are profound. If foreign institutions begin reducing dollar holdings, it could eventually raise US borrowing costs and reduce the "exorbitant privilege" that has allowed America to finance massive deficits cheaply.

A New Financial Order Emerges?

Some analysts see opportunity in this disruption. Asian financial centers like Singapore and Hong Kong could benefit if investors seek alternatives to dollar-dominated markets. Regional currency arrangements—like direct yuan-won trading or ASEAN payment systems—might gain traction.

But transitions in global financial systems are notoriously unpredictable. The last major shift—from sterling to dollar dominance—took decades and was catalyzed by two world wars. Today's change could be more gradual, creating a multipolar currency system rather than a simple replacement.

The question isn't whether dollar dominance will disappear overnight—it won't. The US economy remains the world's largest, American capital markets the deepest, and the dollar the most liquid currency. But for the first time in generations, allies are actively considering alternatives.