Re-dollarization is gaining steam as several countries and businesses are coming back to the US dollar for trade and settlements. Economists at Standard Chartered are convinced that exporters are still keeping the US dollar and find it more attractive than local currencies. Standard Chartered pointed out an example of Taiwan, showing that the country converts only $2 out of every $100 in export earnings into the New Taiwan dollar. They keep $98 in US dollars, as the currency is more stable and powerful, and is highly liquid.
“We’re not really in this de-dollarization camp,” said Divya Devesh, Standard Chartered’s co-head of FX Research. She added that companies are still clinging to the US dollar, despite their leaders asking them to prioritize local currencies. She called the phenomenon ‘re-dollarization’, where businesses are seeing the USD as a way to keep their revenues afloat. There is a clear disparity between their leader’s speeches and the way businesses want to keep their revenues unaffected.
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Re-Dollarization: The US Dollar Bounces Back
Standard Chartered pointed out that not only do they find the dollar attractive, but even the US stock market also looks lucrative to foreign investors. “I actually see re-dollarization in the form of exporters keeping dollars, and investors still finding US equities very attractive to invest in,” Devesh said. Therefore, the US still commands the monetary market despite receiving serious challenges since 2022. Devesh stressed that the alternative currencies out there in the market are not very attractive for business.
Devesh also explained that while re-dollarization is gaining steam, the de-dollarization trend is waning. “I don’t think the dollar is going to lose its safe-haven status in the near or medium term simply because of the budget deficit,” he said. The US dollar is the most productive currency, and without it, global businesses might incur huge losses. They are now circling back to the USD, amid speeches from their leaders to use local currencies. In conclusion, the significant shift indicates that the dominant position of the US dollar is here to stay.