Finance
German financial regulator warns of risk of markets questioning dollar's role
Published by Global Banking & Finance Review®
Posted on January 28, 2026
2 min readLast updated: January 28, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on January 28, 2026
2 min readLast updated: January 28, 2026
BaFin warns of potential doubts about the U.S. dollar's global reserve status, highlighting risks of market corrections in its 2026 outlook.
By Tom Sims
FRANKFURT, Jan 28 (Reuters) - Germany's financial regulator BaFin said on Wednesday there was a risk that markets could question the role of the U.S. dollar - currently hovering near a four-year low - as the global reserve currency.
The warning comes a day after U.S. President Donald Trump said the value of the dollar was "great" when asked if he thought the currency had declined too much. His comments added to the pressure on the greenback, which hit a four-year low before edging back up.
Mark Branson, president of BaFin, outlining key risks it had identified for 2026, said generally the potential for sudden price corrections in financial markets was high.
"There also remains the risk that markets will question the role of the U.S. dollar as the global reserve currency," Branson said.
BaFin said U.S. dollar risks for German banks were "manageable".
European banks are dependent on short-term refinancing in dollars in order to meet their liabilities.
"Bottlenecks or abrupt increases in costs, such as those that occur in times of stress...can trigger liquidity bottlenecks," BaFin said.
Branson said regulators were particularly interested in looking at the refinancing profile of larger banks that are most exposed to the dollar.
(Reporting by Tom Sims in Frankfurt, editing by Ludwig Burger, Thomas Seythal and Hugh Lawson)
Market corrections refer to a decline in the price of a security or market index by 10% or more from its recent peak, often signaling a temporary downturn.
Monetary policy is the process by which a central bank manages the supply of money, often targeting interest rates to achieve macroeconomic objectives like controlling inflation.
Currency hedging is a financial strategy used to protect against potential losses from fluctuations in exchange rates, often involving derivatives like options or futures.
Financial stability refers to a condition where the financial system operates effectively, with institutions able to withstand shocks and maintain confidence in the economy.
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