For years, the narrative of “de-dollarization” has simmered in the background of global finance, fueled by geopolitical tensions and a shifting economic landscape. From U.S. allies like Canada and France expressing concern over the greenback\u2019s hegemony to rivals like Iran and China turning toward cryptocurrencies and the yuan, the signs of a retreat seem visible. Statistically, the argument has teeth: the U.S. dollar\u2019s share of global foreign exchange reserves has slipped from 71% in 1999 to 57% in 2024, marking its lowest point in a quarter-century.<\/p>\n
However, inside the research offices of Standard Chartered, a different story is emerging. Rather than a terminal decline, analysts at the bank see a phenomenon they describe as “re-dollarization,” driven by the sheer lack of viable alternatives and the continued magnetism of American capital markets.<\/p>\n
\u201cWe\u2019re not really in this de-dollarization camp,\u201d said Divya Devesh, Standard Chartered\u2019s co-head of FX research for ASEAN and South Asia, during a July 15 press briefing at the bank\u2019s Singapore office. Devesh argues that while central bank reserves might be diversifying, the private sector and global investors are doubling down on the dollar. \u201cI actually see re-dollarization in the form of exporters keeping dollars, and investors still finding U.S. equities very attractive to invest in,\u201d he noted.<\/p>\n
To illustrate this behavior, Devesh pointed to Taiwan as a prime example of the dollar\u2019s stickiness. Despite the political rhetoric surrounding currency diversification, Taiwanese exporters convert only $2 out of every $100 in export earnings into the New Taiwan dollar. The remaining $98 is largely retained in U.S. dollars, serving as a liquid hedge and a primary vehicle for international trade.<\/p>\n
This perspective stands in stark contrast to a growing chorus of skeptics who warn that the U.S. dollar is vulnerable. Critics often cite the ballooning U.S. federal debt, the frequent use of financial sanctions by Washington, and the rise of non-dollar trade blocs as existential threats to the currency\u2019s status. These concerns have prompted several Asian governments to de-risk. Central banks across the region have been aggressively expanding their gold reserves to reduce reliance on the Treasury market. The People\u2019s Bank of China has engaged in multi-month buying sprees, while the Reserve Bank of India recently repatriated roughly 100 tonnes of gold back to its domestic vaults.<\/p>\n
Standard Chartered\u2019s leadership acknowledges these fiscal pressures but suggests they are being mispriced in the currency markets. Eric Robertsen, the bank\u2019s chief strategist and global head of research, noted that while the U.S. budget trajectory is a valid concern, it is a problem shared by many of the world\u2019s major economies. <\/p>\n
\u201cYou can have a negative view on Trump, twin deficits, or the U.S. budget trajectory,\u201d Robertsen said. \u201cBut if you sell U.S. dollars, you have to buy something else, and the alternatives out there are not very attractive.\u201d<\/p>\n
In Robertsen\u2019s view, the bond market\u2014rather than the foreign exchange market\u2014is the primary theater where fiscal anxieties play out. He contends that the dollar\u2019s fundamental role as a refuge remains intact. \u201cI don\u2019t think the dollar is going to lose its safe-haven status in the near or medium term simply because of the budget deficit,\u201d he added.<\/p>\n
The resilience of the U.S. economy has also forced a reversal in market positioning. Last year, following various tariff announcements, there was a notable wave of dollar selling and FX hedging, particularly among European investors looking to protect their dollar-denominated assets. However, as the Federal Reserve maintains a cautious stance on rate cuts and the U.S. economy continues to outperform its peers, that bearishness is fading.<\/p>\n
\u201cNow that the Fed is not cutting rates and the U.S. economy [is] displaying some resilience, the idea of U.S. outperformance is gaining some traction again,\u201d Robertsen explained.<\/p>\n
Beyond interest rates and trade policy, a deeper structural driver is at play: productivity. The U.S. has maintained a significant lead in technological innovation, particularly in the realm of artificial intelligence, which is beginning to yield broader economic dividends. <\/p>\n
\u201cIt\u2019s not just in the AI industry. Broader productivity gains across the U.S. should translate into better earnings, and subsequently into more capital flows going into the U.S.,\u201d Devesh concluded. \u201cThe demand for U.S. assets from foreigners is also still very strong, and that\u2019s the underlying driver which keeps the dollar quite resilient.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
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