During tough financial times, everyone has worries about the US dollar. Could the dollar currency collapse? If it does, what happens to foreign currencies? Would the dollar lose its role as the world's reserve currency?
According to financial analysts from Schwab, it's very unlikely that we are dealing with a collapsing dollar. However, J.P. Morgan analysts believe there is a 45% chance that, by the end of 2025, the U.S. will be in a recession.
What does that mean to me? It means that everyone needs to understand how this could lead to collapse and what you can do to prepare for it.
The collapse of the US dollar could mean several things. First, there would be a significant economic instability. This would not only affect us here in the US, but it would also affect the world economy. There would also be an increase in the cost of goods and services.
Of course, a currency crisis would also lead to a lot of anxiety for everyone.
This is just the tip of the iceberg, however.
Keep reading and I'll explain more about what could happen if the dollar collapses, how likely I believe it will, and what could happen to key indicators of the economy, including the housing market.
What Is Meant by the Term "Dollar Collapse?"
What do I mean when I keep talking about the possibility of a U.S. dollar collapse? Basically, I'm referring to a specific scenario where the value of the U.S. dollar takes an extreme plunge in relation to other world currencies. If the dollar becomes devalued, it will almost certainly lead to severe inflation.
Everyday goods and services would become extremely expensive. There would be a huge loss of confidence in the U.S. economy. The national debt would rise. Geopolitical shifts would occur because other countries would not want to keep using the dollar as the global reserve currency.
Yes, there are some concerns about how stable the dollar is. However, most economists and financial professions, myself included, do not believe a complete collapse would happen. That being said, however, in the off chance that is DOES occur, the ramifications, both here and abroad, would negatively affect everything from trade and savings to investments and the overall stability of fiat currencies.
Other Concerns Associated with the Collapse of the U.S. Dollar
The concerns I mentioned above aren't everything that we need to consider. There are other concerns, too. For instance, if the U.S. dollar collapses, there would be a huge drop in purchasing power. This would interrupt trade across the world and affect the cost of both imports and exports. It's also possible that there would be countries out there that wouldn't accept the dollar at all.
If any of this occurred, though I do think it's unlikely, it would negatively affect the everyday lives of all of us.
Even if you have savings, it would become devalued, and the necessities we use every day would become unaffordable to many.
What Might Cause the U.S Dollar to Collapse?
At this point, you might be wondering what could cause the U.S. dollar to collapse. Here are some of the important factors:
- Higher National Debt -- The national debt here in the US is rising higher all of the time, and it's rising very quickly. At the time I was writing this post (March 21, 2025) the national debt was $36,216,421,293,528.
- Rising Inflation -- Inflation could continue to rise, and it could rise by a significant amount. Currently, according to the Consumer Price Index, is 2.8%, as of March 2025.
- Increase in the Use of Other Currencies -- For many years, the U.S. dollar was the dominant currency for international trade. However, things are shifting and other currencies, like the Chinese yuan, are gaining traction. Currently, the dollar is still the main currency for international trade, but with others starting to get a foothold, the dollar's power could subside.
- Reduced Confidence -- If other countries in the world lose faith in the US economy, it's likely they will pull investments. This could also cause the dollar to collapse.
What Are the Odds that the U.S. Dollar will Collapse?
Almost every financial analyst I know of believes that the U.S. dollar will not collapse. However, there are some outliers.
Let's look at what some experts have to say about it:
Kathy Jones - Managing Director, Chief Fixed Income Strategist - Schwab Center for Financial Research
"The dollar remains close to a 15-year high versus currencies of countries with which the U.S. trades. It also remains the primary currency used for trade and financial transactions in the global economy. The size of the recent non-dollar transactions that have raised concerns are very small. Trade in the Chinese yuan accounted for less than 4% of global trade as of December 2024.
There are few signs that major foreign holders are poised to suddenly shift away from U.S. dollars and there are few other currencies that could take its place as a reserve currency. In our view, a gradual move to a global economy with a less-dominant dollar is possible over time, but we don't see the dollar losing its reserve currency status. "
-- Source - https://www.schwab.com/learn/story/will-us-dollar-be-dethroned
Sean Ross - Strategic Adviser at 1031x.com, Investopedia Contributor, and the founder of Free Lances Ltd.
"The collapse of the dollar remains highly unlikely. Of the preconditions necessary to force a collapse, only the prospect of higher inflation appears reasonable. Foreign exporters such as China and Japan do not want a dollar collapse because the U.S. is too important a customer."
-- Source - https://www.investopedia.com/articles/forex-currencies/091416/what-would-it-take-us-dollar-collapse.asp
Peter Schiff - Economist and Founder of Schiff Sovereign
"The Trump-era dollar gains have been completely wiped out — but the worst is yet to come. When the Fed starts cutting rates and returns to quantitative easing (QE), the dollar will weaken dramatically."
If the Dollar Does Collapse, When Will This Happen?
For those who have concerns about the collapse of the U.S. dollar, they might be wondering when it could happen. This is difficult to predict, of course.
At the end of 2024, Mitch Daniels of Purdue University and part of the Committee for a Responsible Federal Budget, says "America is racing toward a fiscal apocalypse, unprepared for the serious social upheaval that could result."
We can also look at what Kathy Jones from Schwab Center for Financial Research has to say. She is quoted above, and she also says that the concerns about the devaluation of the dollar is "overblown."
All of this being said, both economists and analysts agree on one thing -- the mounting growth of the national debt is a serious concern. However, if, or when, this might have a maximum impact, is unknown.
How Would the Collapse of the Dollar Affect the Average American?
Here is how a U.S. dollar collapse would affect various aspects of American life.
Here is some more information about the above:
Your 401k
Your 401k could lose a lot of value, especially if you have a lot of American assets in it.
The Housing Market
Interest rates would increase if the dollar collapsed, which makes it more difficult to buy a home. In turn, this would also lower the value of owned homes.
Loans and Lending
If you need to borrow money, it will be extremely expensive because interest rates would rise. Businesses could also not be able to afford loans, which would stop business growth in the country.
Credit Cards
We all know that credit card interest rates are already pretty high, but if the dollar collapses, these could go even higher. It would be an extreme strain on a household to manage credit card debt.
Price of Everyday Goods and Services
The cost of gas, food, utilities, clothing, and other necessities would also increase.
Investments
Overall, investments would lose value. Mutual funds, stocks, and bonds would also become devalued.
How to Prepare for the Possibility of the Collapse of the Dollar
Though I don't believe that the dollar will collapse, I do think it's prudent to make a few preparations.
Really, I believe it's best practice to always have a few good, financial strategies in place to ensure you can survive and thrive in any type of economy.
Strategies for Preparation
One thing you can do is diversify your investments. This means having investments of different types and from different asset classes. You can do this by purchasing stock and bonds, and consider buying precious metals, like gold.
If you want to buy precious metals, I have a few recommendations for you:
- American Hartford Gold
- Priority Gold
- Birch Gold
It is really important to prepare your financial accounts in other ways, too. For instance, I suggest having an emergency fund and doing your best to pay down high-interest debt.
Though I believe it's unlikely that the U.S. dollar would fully collapse, I do believe that a recession could easily affect us.
Here are some best practices for everyone:
- Have an emergency fund or some type of cash reserves. You should have enough to survive for a minimum of six months, if possible.
- If you believe that you will need cash from an investment account within the next year to 18 months, it's in your best interest to take the cash out now instead of waiting. You can set it aside until you need it.
- If you don't have the capacity to get through a recession, try to rebalance the investments you have to assets that are less risky.
Before I Go, Here are Some Other Survival Strategies
Once you have your finances prepared, you should also do things like implement basic survival tactics. For instance, it won't hurt to have a stockpile of non-perishable food.
It is also a good idea to store water and other basic supplies.
Though some people might believe that these tactics are a bit extreme, we know from the COVID-19 pandemic that having food available can help in a crisis.
Finally, I think it's important that you have some sort of support network in place.
Even if we don't have a recession or financial collapse in the future, it's always a good idea to have people around you who you can rely on when you need them.
Frequently Asked Questions About the Possibility of a US Dollar Collapse
What would happen if the US dollar collapses?
If the dollar collapses, the entire global economy would become unstable. It's likely that inflation would skyrocket, and goods we are used to purchasing would become unaffordable. The stock market would likely crash and banks could fail.
What happens to Social Security if the dollar collapses?
If the dollar collapses, benefits from Social Security could lost a lot of value. the government could struggle to pay benefits, which could lead to reductions and delayed payments. Though Social Security is backed by revenue from taxes, if the dollar collapses, beneficiaries could struggle to afford basic necessities.
What goes up when the dollar falls?
When the value of the dollar falls, other assets, like gold, silver, and crypto, usually rise, as they are considered to be "safe havens." Additionally, foreign currencies might appreciate against the dollar. Oil, agricultural products, and other commodities often become more expensive when the dollar falls, and the stocks of companies operating in several different nations that earn revenue in other currencies could also benefit.
If the dollar fails, what currency would replace it?
There is no clear answer here, but some would say the euro, the Chinese yuan, or digital currency, like Bitcoin, could replace the dollar if it totally fails.
About Tim Schmidt Sr.
Tim Schmidt is an Entrepreneur and Serial Investor. Since 2012 he's been an advocate of alternative investments using a Self Directed IRA. His work has been featured in Yahoo! Finance, USA Today, Business Insider, and Tech Times, among others.
