According to State Street’s Global Chief Investment Officer, Lori Heinel, the rising US debt has made US dollar-based assets unattractive to investors, as shared by a Reuters assets report. US Treasury bonds, US stocks, or even simply holding dollars have become riskier or less appealing. President Trump’s tariffs may further fuel the movement away from the dollar, further strengthening the de-dollarization momentum.
Are Tariffs A Blow To The USD?
According to a CoreData survey conducted in May-June of this year, investors are reducing their exposure to the US. The data was collected from financial institutions that manage $4.9 trillion worth of assets. The survey found that 47% of respondents were strategically reducing their long-term investments in the US market. The development may lead to a substantial concern for the US dollar’s position. It may also lead to further global de-dollarization.
Thierry Wizman, global FX and rates strategist at Macquarie Group, also shares a similar concern. Wizman says that the US dollar’s role as the global reserve currency could be questioned as the country forfeits the role of free trade facilitator.
Also Read: Future of US Dollar in Doubt as Safe-Haven Status Unravels
The US recently approved a tax and spending bill that will add trillions to the government’s debt. The move could worsen longstanding deficit concerns.
More Diversification And De-Dollarization Ahead?
A recent report by BlackRock found that central banks are moving their assets away from the US dollar. The report stated, “diversifying beyond the dollar, leading to a rise in other currency reserves, gold holdings, and consideration for emerging assets like Bitcoin.“
According to former Bank of Japan Deputy Governor Hiroshi Nakaso, the US dollar will remain the supreme global currency. Despite his pro-USD remark, Nakaso highlighted that there are cracks in the USD’s status.
These cracks have been highlighted by many industry experts and economists. While it will be extremely difficult to find an alternative to the US dollar-based global trade system, it would appear that many countries are already making moves to de-dollarize as quickly as possible.