00;00;09;16 - 00;00;40;02
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Are we in the midst of a regime change in global currency markets, with the US dollar retaining its status as the key international currency? Is de-dollarisation for real? And more importantly, how should currency managers react? Welcome to CurrencyCast! My name is Agustin Mackinlay, I’m the Senior Financial Writer at Kantox, and your host. In this episode, we disentangle the debate around the status of the US dollar in global currency markets.
00;00;40;04 - 00;01;13;04
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This is a sensitive topic. Can give rise to the expression of political opinions. Can create emotional reactions. Yet we need elements of response. That's why we take a measured approach. As we break down the components of the de-dollarisation debate. Before we delve into the de-dollarisation debate, a tribute of sorts must be paid to the mighty US dollar. This is the currency that, for the better part of the last 70 years was, and still is, at the centre of the global financial system.
00;01;13;06 - 00;01;52;22
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Two recently published books by Paul Blaustein, “King Dollar”, and by Harvard economist Ken Rogoff, “Our Dollar, Your Problem”, help us to assess the tremendous impact of the US currency. Consider the following metrics. There are 150 currencies, yet in about 90% of all effect rates. The dollar stands on one side of all those transactions. We're talking here of a market that trades roughly $7.5 trillion a day on average, according to the Bank for International Settlements.
00;01;52;25 - 00;02;27;27
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Roughly 60% of the central bank's reserves are in USD, and about 40% of global trade is conducted in USD. And that proportion rises to 80% in the case of the crucial oil market. And if we consider the swaps markets, that we discussed in the previous episode of CurrencyCast, just once again, we're talking about a 5 trillion a day on average market in which the US dollar stands on one side of most of those transactions.
00;02;28;00 - 00;03;01;27
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How do we account for the massive dominance of the US dollar? A useful concept here is network effects. A more useful system is, the more user it attracts, the more users there are, the more useful it will become. And so on and so forth. The systems tend to become natural monopolies. Take Facebook, Google, Amazon or the US dollar ad contract for fans of, drawing analogies between currencies and languages.
00;03;01;29 - 00;03;28;01
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In this case, the analogy imposes itself, or should I say speaks for itself. The global dominance of the US dollar is mirrored or matched by the dominance of the English language in commerce and diplomacy. And by the way, that's exactly the reason why I'm using the English language in this podcast. But what in turn explains those network effects?
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Consider the following qualitative factors. The United States has deep and liquid financial markets. Investors and treasurers worldwide can park their money almost on a 24/7/365 basis in US dollar-denominated financial assets, including Treasury securities. The United States has also the greatest military power on Earth, has also a network of top-ranked universities. And last but not least, there is a rule of law.
00;04;02;08 - 00;04;35;01
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Thanks to judicial independence, freedom of the press and an independent central bank. Note that these elements tend to reinforce each other. When everything goes well, then the network effects are amplified and the dominance of the US dollar only increases. But what if some of these elements are questioned? That would introduce an element of vulnerability. Before turning to the vulnerabilities of the US dollar-based financial system,
00;04;35;03 - 00;05;03;16
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let me briefly mention what some analysts are calling digital dollarisation. It refers to the use of stablecoins, a proxy for the US dollar, a digital proxy for the US dollar only with the advantage of speed. USDC and USDT have emerged as the de facto standard in the stablecoin universe. Backers argue that stablecoins allow companies to bypass traditional banks and a swift network.
00;05;03;18 - 00;05;46;17
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According to the Financial Times, as much as $752 billion worth of stablecoin transactions took place in May 2025. Stablecoins appear to be particularly popular in emerging markets, although some companies, such as Uber, are telling investors that they are exploring the use of stablecoins in Treasury operations. The main external vulnerability of the US dollar reflects the long-standing desire of Chinese authorities to arrive at a multipolar currency world, in which a few currencies or a few leading currencies would coexist, compete with each other, and check and balance each other, but not also the role of technology.
00;05;46;20 - 00;06;24;03
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Just as it can lead to digital dollarisation through stablecoins, it can also reduce transaction costs and thereby undermine some of the network effects of the US dollar. This has been noted, among others, by economist Barry Eichengreen and his team. Think the example of a Canadian Treasury team that needs to buy Mexican pesos. Before the advent of multidealer trading platforms, it would make sense for that Canadian Treasury team to first sell CAD and buy USD.
00;06;24;05 - 00;06;56;24
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Once they handle dollars on their hands, they would sell the USD and buy MXN. But now it might be more profitable to directly sell the CAD and buy the MXN. That would reflect lower transaction costs and perhaps undermine a little bit the network effects of the US dollar. Mr Eichengreen and his team think that this is going to benefit the currencies of a number of relatively small, but well-managed economies.
00;06;56;26 - 00;07;28;16
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That includes the Canadian dollar, the Australian dollar, and the New Zealand dollar. the Swedish Crown, the Norwegian Crown. And in Asia, the Hong Kong dollar, the Singapore dollar, the Taiwan dollar, and the Korean won, and the Chinese renminbi. Let me mention some examples of bottom-up actions. A Dutch pension fund is considering reducing its exposure to US dollar-denominated assets on account of threats to judicial independence in the United States.
00;07;28;19 - 00;08;06;04
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European pension funds hold about 770 billion of unhedged positions in US dollar-denominated assets. Chinese banks, according to a paper published by the Federal Reserve of the United States, are reducing their USD-denominated lending to emerging markets and are replacing that by CNY-denominated longs. Note that this not only reflects political preference, it also reflects the lower cost of funding for Chinese banks in CNY compared to USD.
00;08;06;06 - 00;08;46;25
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And finally, there is mention of an upcoming avalanche of $2.5 trillion worth of US dollar-denominated assets to be sold by pension funds in Asia, mostly in Taiwan and in South Korea. In a widely cited article for Bloomberg News, Carter Johnson mentions three cases of US-based Treasury teams sidestepping the US dollar altogether. A lumber company that used to pay hardwood from Europe by sending USD well finds that it can obtain a 2% discount by paying in euros instead.
00;08;46;27 - 00;09;19;09
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A furniture retailer with imports from China has just renegotiated all of its long-term contracts will now be built in CNY, instead of USD. And a food company sourcing equipment from Italy will now settle all of its transactions in euros instead of the US dollar. Other signs of uneasiness about the US dollar include safe haven flows. The Swedish crown and the Swiss franc appear to have replaced the US dollar as the currency of choice
00;09;19;16 - 00;09;46;13
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in the event of a flight to safety episodes. This is all the more remarkable, since both Switzerland and Sweden have better grades in terms of judicial independence and freedom of the press than the United States. Global currency swaps, these lines were instrumental in calming market shares during the crisis of 2008 and 2020, and there are now doubts about their renewal.
00;09;46;15 - 00;10;27;29
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Gold reserves, according to the Financial Times, both Italy and Germany are considering withdrawing their gold reserves from the United States, and would amount to about $245 billion worth of gold. Note that France did just that, but about 60 years ago under Charles de Gaulle as the president. And finally custody holdings, if you want to know whether central banks are buying or selling US dollar-denominated Treasury bonds, go to the website of the Federal Reserve and look at the weekly balance sheet of the Central Bank of the United States.
00;10;28;01 - 00;10;57;17
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In an appendix, you will find information about custody holdings, the amount of Treasury securities held by foreign central banks under custody of the Federal Reserve Bank of New York. Is a very useful information, and it's been showing some weakness or some sales of US Treasury securities by foreign central banks. Earlier in this podcast, I used the language analogy to explain the network effects of both the US dollar and the English language.
00;10;57;19 - 00;11;22;24
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Now, let me extend that language analogy to the reality of the emerging multi-currency world. Using more currencies in business operations it's like speaking the language of your customers and/or your suppliers. It brings a distinctive advantage. If you're going to sell your products in the Polish market, would you advertise them in Spanish or in Italian? Well, of course not.
00;11;22;27 - 00;11;49;23
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And that brings me to one of Kantox’s most important mantras: embracing currencies. So let's dig a little bit deeper into that. As value chains become more fragmented across multiple countries, companies must use a wider range of currencies to become more resilient. Fearing the high cost of foreign exchange risk management, some companies use just a handful of currencies or reject them altogether.
00;11;49;26 - 00;12;19;01
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But this perception predates automated foreign exchange risk management. Technology now makes it advantageous to actively and confidently sell in the currencies of your customers and buy in the currencies of your supplier. In B2C setups, selling in more currencies means a better customer experience, higher conversion rates, clarity in pricing, and a higher sales-to-asset ratio. In B2B environments,
00;12;19;08 - 00;12;46;16
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using more currencies means no markups from suppliers, a wider range of suppliers, extended pay in terms, and when buying less credit risk in accounts receivables. Companies have a choice to make by using just a handful of currencies like the US dollar or the euro. They leave the process, the underlying process of foreign exchange risk management to their customers and or suppliers.
00;12;46;18 - 00;13;07;24
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These companies are bound to face lower sales and or higher costs. But there is an alternative thanks to currency management automation companies can take ownership of the process of foreign exchange risk management, and that's how they reap the benefits of the emerging multi-currency work.