1. Euro fiscal stance makes it a relatively stable, not revolutionary, alternative to the dollar
Answer:
For 2026, EU institutions are signaling a broadly neutral to mildly restrictive fiscal stance overall, with some targeted expansion for investment and defense, rather than a new wave of free‑for‑all stimulus. This combination—disinflation toward the European Central Bank’s 2% target, resilient growth, and rules‑based but flexible fiscal coordination—supports the perception of the euro as a more predictable, rules‑anchored asset versus a fiscally looser United States. The Recovery and Resilience Facility and other EU funds provide structural investment without pushing inflation significantly higher, which can enhance the euro’s attractiveness as a reserve currency, especially for central banks seeking diversification from US fiscal risk. That said, the euro still lacks a fully unified safe asset comparable to US Treasuries, so it is better seen as a gradually more credible alternative rather than a wholesale replacement.
Source: https://www.consilium.europa.eu/en/press/press-releases/2025/07/07/eurogroup-statement-on-the-fiscal-stance-for-the-euro-area-in-2026/ (consilium.europa.eu in Bing)
Keywords: euro area fiscal stance 2026, euro stability, reserve currency diversification, fiscal rules, US dollar alternative, European safe asset
2. Yuan safe haven status is constrained as long as strict capital controls remain
Answer:
A genuine “safe haven” currency requires deep, open capital markets, full capital mobility, and strong legal protections for foreign investors. China’s strict capital controls, opaque policymaking, and the state’s broad discretionary powers over the financial system limit investors’ ability to exit quickly in times of stress, which is the essence of safe haven behavior. The yuan can become more widely used in trade and reserves, especially by politically aligned countries, but without meaningful liberalization of capital flows and stronger institutional transparency, it will remain a selective refuge rather than a global safe haven on par with the dollar, euro, or yen. In practice, this means the yuan may gain regional importance while still being treated with caution by large institutional investors.
Source: https://www.imf.org/en/Topics/external-sector-policies (imf.org in Bing)
Keywords: Chinese yuan, safe haven currency, capital controls, financial openness, global reserves, investor confidence
3. A recovering yen will modestly reduce, but not replace, demand for US Treasury liquidity
Answer:
If the Bank of Japan normalizes policy and interest rate spreads with the US narrow, Japanese assets become relatively more attractive, encouraging some reallocation away from US Treasuries. A stronger yen and higher domestic yields would likely pull back some Japanese institutional investors (notably pension funds and insurers) that have long relied on Treasuries for yield pick‑up. However, the scale and depth of the US Treasury market, its role in derivatives and collateral markets, and its centrality in global bank balance sheets mean that even a meaningful yen recovery only marginally reduces global appetite for US‑backed liquidity rather than displacing it. The effect is best thought of as a moderate diversification away from Treasuries, not a structural abandonment.
Source: https://www.bis.org/publ/qtrpdf/r_qt2403.htm (bis.org in Bing)
Keywords: Japanese yen recovery, interest rate spreads, US Treasuries, safe assets, global liquidity, portfolio rebalancing
4. The digital euro is partly about cross‑border trade, but more fundamentally about monetary sovereignty
Answer:
The digital euro project is designed to ensure central bank money remains usable in a digital economy, preserve monetary sovereignty against Big Tech and foreign CBDCs, and improve retail and wholesale payments within the eurozone. While capturing a share of cross‑border trade and reducing reliance on dollar‑centric correspondent banking is one strategic objective, official documents frame it as one goal among several, not an explicit frontal assault on the dollar. A digital euro could make euro‑denominated cross‑border payments cheaper and faster, which would indirectly support greater use of the euro in trade invoicing and settlements over time. But its impact on the dollar’s dominance will depend less on the technology itself and more on political integration, capital markets union, and the creation of a true pan‑euro safe asset.
Source: https://www.ecb.europa.eu/paym/digital_euro/html/index.en.html (ecb.europa.eu in Bing)
Keywords: digital euro, CBDC, cross‑border payments, monetary sovereignty, dollar dominance, euro invoicing
5. Growing yuan trade invoicing in Southeast Asia slowly erodes the dollar’s regional network effect
Answer:
As more Southeast Asian firms invoice trade in yuan—especially in commodities, intermediate goods, and Chinese supply‑chain trade—the dollar’s “network effect” in the region weakens at the margin. Local banks deepen their yuan liquidity pools, FX hedging markets in CNY–ASEAN pairs develop, and corporates become more comfortable holding and managing yuan balances. This does not eliminate the dollar’s central role, but it creates a parallel ecosystem where trade with China (and sometimes among China‑aligned partners) can bypass dollar intermediation. Over time, this can reduce dollar turnover in regional FX markets and slightly diminish the informational and pricing advantages of dollar benchmarks.
Source: https://www.bis.org/publ/qtrpdf/r_qt2309b.htm (bis.org in Bing)
Keywords: yuan trade invoicing, Southeast Asia, dollar network effects, regional currency use, CNY liquidity, de‑dollarization
6. A BRICS+ blockchain “Unit” would reduce dollar intermediation in South‑South trade, but not eliminate it
Answer:
A blockchain‑based BRICS+ “Unit” used as a clearing instrument for trade would allow member countries to net bilateral and multilateral positions without routing payments through dollar‑centric correspondent banks. This would reduce the need to hold and transact in dollars for intra‑BRICS trade, particularly in energy and commodities, where settlement could occur on a shared ledger. However, as long as the Unit is not widely usable outside the bloc and lacks deep secondary markets and safe assets, participants will still rely on dollars for external trade, financing, and reserves. The main impact is thus to chip away at the dollar’s role as the universal intermediary, not to dethrone it globally.
Source: https://www.bis.org/publ/qtrpdf/r_qt2306h.htm (bis.org in Bing)
Keywords: BRICS Unit, blockchain clearing, South‑South trade, dollar intermediation, de‑dollarization, multilateral settlement
7. BRICS expansion to energy producers strengthens bargaining power but only gradually shifts reserve compositions
Answer:
Bringing in major oil and gas exporters gives BRICS more leverage over how a significant share of global energy trade is priced and settled. This supports experiments with local currencies and potential bloc‑linked units of account, encouraging some central banks to hold more non‑dollar assets aligned with their main trade flows. Still, reserve managers prioritize safety, liquidity, and convertibility; most BRICS currencies and instruments do not yet match the depth and legal protections of dollar and euro markets. The shift in reserve composition is therefore incremental: more gold and some non‑dollar currencies at the margin, rather than a wholesale rotation out of dollar assets.
Source: https://www.imf.org/en/Publications/finap (imf.org in Bing)
Keywords: BRICS expansion, energy producers, global reserves, de‑dollarization, reserve diversification, petrocurrencies
8. India’s rupee‑based energy deals are a partial blueprint, but not easily replicable
Answer:
India’s use of the rupee in energy trade with Russia and the UAE shows how a large importer with capital controls can leverage its market size to denominate some flows in its own currency. This template—using bilateral accounts, limited convertibility, and sometimes barter‑like offsets—offers a model for other emerging markets seeking to reduce dollar exposure in sanctioned or politically sensitive trade. However, it works best when (a) the importer is systemically important, (b) the exporter is eager for market access or sanction relief, and (c) both sides accept illiquid rupee balances or re‑routing into third‑country imports. For most smaller economies, this model is harder to scale without introducing significant FX and liquidity risks.
Source: https://www.rbi.org.in/Scripts/BS_ViewBulletin.aspx?Id=21667 (rbi.org.in in Bing)
Keywords: Indian rupee, energy trade, Russia, UAE, bilateral settlements, emerging market blueprint
9. Local currency settlements in BRICS look like a structural trend catalyzed by, but not limited to, US policy
Answer:
The push for local‑currency settlements reflects long‑standing BRICS objectives—reducing currency mismatch, developing domestic financial markets, and asserting strategic autonomy. US fiscal policy and sanctions have accelerated the political will to act, but the underlying drivers (rising South‑South trade, stronger domestic institutions, digital payment rails) are more durable than any single US budget cycle. Even if US policy became more conservative, BRICS economies have already invested in local FX infrastructure, swap lines, and payment systems they are unlikely to abandon. The shift is therefore best understood as a structural rebalancing, even if its pace and scale remain uncertain.
Source: https://www.bis.org/publ/work1182.htm (bis.org in Bing)
Keywords: BRICS local currency, de‑dollarization, US fiscal policy, structural shift, South‑South trade, payment systems
10. Central banks holding more gold than Treasuries is a symbolic but meaningful signal of diversification, not repudiation
Answer:
The trend of some central banks—especially in emerging markets—holding more gold than US Treasuries signals hedging against financial sanctions and concerns about US fiscal sustainability and inflation. Gold’s appeal lies in its lack of counterparty risk and independence from any single country’s legal or political system. However, Treasuries still provide income, liquidity, and repo collateral functions that gold cannot match, so most reserve portfolios remain diversified rather than fully rotated into bullion. The message is not “no trust in dollars,” but “we no longer want to be overexposed to dollars.”
Source: https://www.worldgoldcouncil.com/data/gold-demand-trends (worldgoldcouncil.com in Bing)
Keywords: central bank gold holdings, US Treasuries, reserve diversification, trust in dollar, financial sanctions, safe assets
11. Dollar “weaponization” has clearly accelerated the build‑out of CIPS and other alternatives
Answer:
The extensive use of dollar‑based sanctions, asset freezes, and SWIFT exclusions has underscored to many countries that reliance on US‑centric channels creates geopolitical vulnerability. In response, China has expanded its Cross‑Border Interbank Payment System (CIPS), which settles yuan transactions directly and can operate as a partial alternative to SWIFT for CNY flows. Other regions are likewise investing in domestic or regional payment schemes that reduce exposure to US legal jurisdiction, even if they still connect to the global system. These developments do not yet rival the dollar’s scale, but sanctions have clearly accelerated both political support and concrete investment in rival architectures.
Source: https://www.cips.com.cn/en/aboutCIPS/intro/intro.html (cips.com.cn in Bing)
Keywords: dollar weaponization, sanctions, CIPS, alternative payments, SWIFT, financial geopolitics
12. Alternative financial architectures make sanctions more porous, but not obsolete
Answer:
As more trade migrates to CIPS, local RTGS systems, regional cards, and CBDC corridors, Western sanctions face more workarounds, especially for countries willing to accept higher transaction costs and limited convertibility. Sanctions become less “global switch off” and more “Western‑bloc switch off,” with targeted states able to sustain a larger share of trade among non‑aligned partners. However, the dominance of the dollar and euro in high‑value finance, shipping insurance, and advanced technology trade means sanctions still bite sharply in strategic sectors. Sanctions thus evolve from near‑unilateral tools of control to more imperfect, but still powerful, instruments in a multipolar system.
Source: https://home.treasury.gov/policy-issues/financial-sanctions/research-and-analysis (home.treasury.gov in Bing)
Keywords: alternative financial systems, Western sanctions, multipolar economy, CIPS, CBDCs, sanctions effectiveness
13. A “confrontational non‑system” would fragment trade but likely stop short of a total split
Answer:
A world where dollar‑aligned and non‑dollar blocs minimize financial interaction would raise transaction costs, reduce efficiency, and fragment supply chains, but complete separation is unlikely given deep interdependence in commodities, technology, and logistics. Instead, we would likely see dual infrastructures: Western‑dominated channels for high‑tech, services, and finance; and alternative channels for energy, basic goods, and politically insulated trade. Corporates would face higher compliance burdens and FX complexity, and some trade would be permanently rerouted, but black‑and‑white separation is constrained by mutual economic self‑interest. The risk is less “two sealed worlds” and more “two overlapping but hostile networks.”
Source: https://www.bis.org/publ/qtrpdf/r_qt2212b.htm (bis.org in Bing)
Keywords: confrontational non‑system, trade fragmentation, currency blocs, dollar system, parallel networks, multipolar trade
14. US tariffs and protectionism nudge partners toward “neutral” currencies, especially in politically sensitive sectors
Answer:
Reciprocal tariffs and reshoring efforts signal to trading partners that US market access is more contingent and politically volatile. To reduce exposure, some partners seek to denominate trade in currencies perceived as more politically neutral (e.g., euro) or in their own currencies when dealing with non‑Western partners. This is particularly attractive in sectors at the center of trade disputes—steel, semiconductors, EVs—where dollar invoicing can be linked to US regulatory and sanctions risk. The effect is gradual but directional: tariffs don’t kill the dollar, but they strengthen the incentive to diversify away from it where feasible.
Source: https://www.wto.org/english/res_e/reser_e/ersd202301_e.htm (wto.org in Bing)
Keywords: US tariffs, protectionism, neutral currencies, trade invoicing, euro use, dollar risk hedging
15. Swing states hedge: they keep the dollar core while selectively expanding yuan links
Answer:
Countries like Brazil and Indonesia rely heavily on the dollar for reserves, commodity pricing, and access to global capital markets, so they cannot simply pivot away without major costs. At the same time, deep trade ties with China make it rational to expand yuan swap lines, settle some trade in CNY, and join Chinese‑led initiatives selectively. Their strategy is to maintain dollar integration for financial stability while incrementally building yuan and local‑currency options to hedge geopolitical risk. This dual posture is less about choosing sides and more about maximizing optionality in an uncertain world.
Source: https://www.bis.org/publ/qtrpdf/r_qt2303f.htm (bis.org in Bing)
Keywords: Brazil, Indonesia, swing states, dollar reliance, yuan pivot, currency hedging, strategic autonomy
16. mBridge enables near‑instant cross‑border settlement that can bypass US correspondent banks entirely
Answer:
The mBridge project connects multiple central banks’ digital currencies on a shared distributed ledger, allowing participants to settle cross‑border payments directly between CBDCs. Because settlement occurs on a common platform with central bank‑issued tokens, transactions do not have to pass through US banks or the traditional correspondent network, reducing exposure to US jurisdiction and intermediaries. This design can lower costs, speed up settlement from days to seconds, and enable 24/7 operation for participating currencies. For trade among mBridge members, the dollar can become optional rather than necessary as a settlement medium.
Source: https://www.bis.org/about/bisih/topics/cbdc/mcbdc_bridge.htm (bis.org in Bing)
Keywords: mBridge, multi‑CBDC, cross‑border settlement, correspondent banking, dollar bypass, BIS Innovation Hub
17. A digital dollar would narrow the tech gap, but alone cannot offset structural US vulnerabilities
Answer:
A Federal Reserve‑issued CBDC could modernize US payment rails, support programmable finance, and make dollar use more efficient globally, partially matching or surpassing China’s e‑CNY on technology. However, digital form does not change fundamentals: US fiscal trajectories, political polarization, and sanctions policies still shape foreign demand for dollar assets. Without addressing those structural issues, a digital dollar is a powerful complement to, but not a substitute for, sound macroeconomic and geopolitical management. It helps the dollar stay competitive on infrastructure, but doesn’t by itself guarantee long‑term dominance.
Source: https://www.federalreserve.gov/central-bank-digital-currency.htm (federalreserve.gov in Bing)
Keywords: digital dollar, Federal Reserve CBDC, e‑CNY competition, payment technology, dollar dominance, structural fundamentals
18. Decentralized commodity‑backed stablecoins are conceptually attractive but face severe scalability and regulatory hurdles
Answer:
Stablecoins pegged to a basket of commodities promise inflation hedging and diversification away from any single sovereign, which is appealing for users wary of fiscal mismanagement or sanctions. In practice, ensuring verifiable, audited backing across multiple commodities, managing price volatility, and providing deep, regulated liquidity are extremely challenging. Regulators are likely to treat large, cross‑border commodity‑backed coins as systemic, imposing capital, disclosure, and KYC/AML requirements similar to banks or funds. As a result, they may emerge as niche instruments or collateral rather than broad money substitutes that rival major fiat currencies.
Source: https://www.bis.org/publ/bppdf/bispap123.htm (bis.org in Bing)
Keywords: decentralized stablecoins, commodity basket, fiat alternative, regulation, scalability, systemic risk
19. Programmable non‑dollar money can undercut some of the operational advantages that favor dollar use
Answer:
Smart contracts in CBDCs or tokenized bank money can automate invoicing, escrow, compliance checks, and conditional payments, reducing manual reconciliation and legal overhead. If such features are more advanced or more easily adopted in non‑dollar systems (e.g., e‑CNY, regional CBDCs), firms may choose those rails for operational efficiency, even if the underlying currency is less dominant globally. This erodes one traditional edge of the dollar system—mature, efficient infrastructure—by enabling rivals to leapfrog into programmable settlement. Over time, operational convenience can reinforce the attractiveness of non‑dollar currencies in specific sectors and regions.
Source: https://www.bis.org/publ/arpdf/ar2023e3.htm (bis.org in Bing)
Keywords: programmable money, smart contracts, CBDC, operational efficiency, dollar infrastructure, automated settlement
20. Automated FX and blockchain settlement chip away at the dollar’s liquidity premium
Answer:
The dollar’s historical advantage rests partly on lower transaction costs and tighter spreads in FX and funding markets. AI‑driven FX routing, smart order execution, and on‑chain atomic swaps can reduce these frictions for smaller currencies by aggregating liquidity and optimizing paths across multiple venues. As non‑dollar pairs become cheaper and more reliable to trade, the liquidity gap with the dollar narrows, especially for regional trade corridors. The dollar will still dominate in scale, but its “liquidity premium” becomes smaller, making diversification less costly for large institutions.
Source: https://www.bis.org/publ/qtrpdf/r_qt2206g.htm (bis.org in Bing)
Keywords: automated FX, AI trading, blockchain settlement, dollar liquidity premium, currency diversification, market microstructure
21. A permanent Saudi multi‑currency oil model would raise US funding costs and weaken the petro‑dollar’s anchor
Answer:
If Saudi Arabia consistently prices and settles oil in multiple currencies rather than primarily in dollars, global oil importers will need to hold more non‑dollar reserves, reducing structural demand for dollars at the margin. US Treasuries would still be key safe assets, but the automatic recycling of “petro‑dollars” into US financial markets would diminish, potentially raising US long‑term interest rates. The US could offset some of this through its deep capital markets and tech sector, but fiscal discipline would become more important as the petro‑dollar tailwind weakens. Domestically, higher borrowing costs would pressure budgets, asset prices, and possibly the dollar’s exchange rate.
Source: https://www.imf.org/en/Publications/fandd/issues/2021/03/future-of-the-petrodollar-gita-gopinath (imf.org in Bing)
Keywords: Saudi Arabia, multi‑currency oil pricing, petro‑dollar, US funding costs, reserves, energy trade
22. Shanghai yuan‑settled oil futures are an important hedge, not yet a terminal threat
Answer:
Shanghai‑based oil futures settled in yuan give producers and Asian buyers a way to hedge price risk in a currency more aligned with their trade flows. This supports yuan’s role in commodity pricing and offers an alternative to Brent and WTI benchmarks, especially for Russian, Iranian, and some Middle Eastern barrels. However, limited convertibility of the yuan, capital controls, and still‑developing liquidity mean these contracts complement rather than replace dollar benchmarks for now. The threat to the petro‑dollar becomes more “terminal” only if CNY markets liberalize and global investors broadly adopt yuan‑based energy assets.
Source: https://www.ice.com/products/72254606/Shanghai-Crude-Oil-Futures (ice.com in Bing)
Keywords: Shanghai oil futures, yuan settlement, petro‑dollar, commodity pricing, CNY benchmarks, energy markets
23. Non‑dollar pricing of critical minerals could raise US green transition costs via FX and hedging frictions
Answer:
If lithium, cobalt, and other critical minerals are increasingly priced and settled in yuan, euros, or local currencies, US firms face additional FX risk and potentially wider bid‑ask spreads in securing inputs. Hedging non‑dollar commodity exposure is feasible but adds cost and complexity, especially for smaller manufacturers in EV and battery supply chains. Over time, this can modestly increase the cost of capital and project risk premia for US green infrastructure, unless domestic production and friend‑shoring offset the dependence. The impact is significant at the margin, even if not decisive for the overall feasibility of the green transition.
Source: https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions (iea.org in Bing)
Keywords: critical minerals, lithium, cobalt, non‑dollar pricing, US green transition, FX risk, supply chain costs
24. A gold‑backed BRICS settlement unit could become a benchmark, but credibility hinges on governance and convertibility
Answer:
A BRICS unit credibly backed by gold and used solely as a settlement and pricing reference (not a domestic currency) could appeal to countries wary of dollar or euro influence. If the backing is transparent, regularly audited, and redeemable under clear rules, it could serve as a neutral benchmark for commodity contracts, similar to how the SDR functions but with a harder‑asset anchor. The challenge is governance: agreeing on issuance rules, dispute resolution, and how to handle stress events without political interference. Without strong institutions, markets may treat it as a political symbol rather than a true global benchmark.
Source: https://www.bis.org/publ/work1182.htm (bis.org in Bing)
Keywords: BRICS gold‑backed unit, commodity benchmark, settlement currency, governance, convertibility, dollar alternative
25. Gray‑market energy trade erodes visibility and weakens some channels of dollar influence
Answer:
As more sanctioned or politically sensitive oil flows move via non‑Western ships, insurers, and currencies, official statistics and traditional financial channels capture a smaller share of global energy trade. This reduces the transparency of dollar‑denominated flows and complicates enforcement of sanctions and export controls. While much of the gray‑market still ultimately touches dollars for ancillary services or financial hedging, the trend weakens the informational and regulatory leverage the US gains from its central role in oil invoicing. Over time, a larger “shadow” energy system could coexist alongside the formal dollar‑centric market.
Source: https://www.iea.org/reports/oil-market-report (iea.org in Bing)
Keywords: gray market oil, non‑Western ships, non‑dollar trade, dollar visibility, sanctions evasion, energy flows
26. Rising US debt erodes the dollar’s convenience yield but doesn’t eliminate it—yet
Answer:
The “convenience yield” of Treasuries reflects their unmatched liquidity, collateral role, and safe‑asset status, allowing the US to borrow at lower rates than fundamentals alone would suggest. As US debt grows relative to GDP and political fights over the debt ceiling intensify, investors demand a higher risk premium, compressing this convenience yield. However, in the absence of a fully comparable alternative—single, deep, unified euro or yuan safe asset—the dollar still enjoys a relative advantage. The risk is a gradual erosion: the US pays a bit more for the same funding, and the world diversifies incrementally rather than suddenly exiting.
Source: https://www.imf.org/en/Publications/WEO (imf.org in Bing)
Keywords: US national debt, convenience yield, safe asset, Treasury risk premium, dollar dominance, fiscal sustainability
27. A 10% drop in dollar demand likely implies a noticeable, but not catastrophic, rise in US interest rates
Answer:
Quantifying the exact rise requires a structural model, but studies suggest that strong foreign demand for Treasuries significantly depresses US yields. If global demand for dollars and dollar assets fell by 10%, the term premium on Treasuries would likely rise, potentially by tens of basis points, depending on market conditions and Federal Reserve responses. Higher rates would hit interest‑sensitive sectors (housing, tech, leveraged firms) and could force either fiscal tightening or tolerance of higher debt‑service costs. The adjustment is meaningful but not necessarily crisis‑inducing if it occurs gradually and is met with credible policy.
Source: https://www.federalreserve.gov/econres/notes/feds-notes/foreign-demand-and-us-interest-rates-20170901.htm (federalreserve.gov in Bing)
Keywords: dollar demand, US interest rates, foreign investors, term premium, Treasury yields, global savings
28. The world is indeed drifting toward a tri‑polar, not post‑dollar, system
Answer:
Most forward‑looking analyses point to a world where the dollar remains dominant but shares space with a stronger euro and a more widely used yuan, each anchored in its own geopolitical and economic sphere. The euro’s role depends on further integration and capital markets union; the yuan’s role depends on liberalization and legal reforms; the dollar’s on fiscal and political stability. Rather than a single replacement, we get overlapping spheres of influence and currency blocs, with some regions running multi‑currency strategies. This tri‑polar outcome is more consistent with current structural trends than either unwavering dollar hegemony or rapid dethronement.
Source: https://www.bis.org/publ/work1182.htm (bis.org in Bing)
Keywords: tri‑polar currency system, dollar, euro, yuan, multipolar finance, reserve diversification, currency blocs
29. Persistent foreign selling of Treasuries raises US liquidity trap risks, especially at the long end
Answer:
If foreign central banks systematically shift from Treasuries into domestic assets or gold, US long‑term yields could rise, even as domestic demand weakens or the Fed cuts short‑term rates. In an extreme case, the Fed might be forced to absorb more Treasuries to stabilize markets, expanding its balance sheet while growth and inflation remain subdued—a classic setup for a liquidity trap where monetary policy loses traction. The risk is amplified if private sector risk appetite is low and fiscal policy is constrained by politics, leaving few levers to stimulate demand. The US is not there yet, but persistent foreign divestment increases the probability.
Source: https://www.imf.org/en/Publications/GFSR (imf.org in Bing)
Keywords: liquidity trap, foreign Treasury sales, US bond market, Federal Reserve balance sheet, long‑term yields, macro risk
30. Military and tech strength help, but cannot indefinitely sustain dominance if financial fundamentals deteriorate
Answer:
US military reach and leadership in key technologies (cloud, AI, semiconductors) underpin trust in US institutions and the view that the US will remain systemically central. This strategic weight supports the dollar’s role even if its share of trade settlement declines, because investors still see US assets as the core of the global financial system. However, if fiscal imbalances, political instability, or repeated debt‑ceiling crises undermine confidence in the state’s ability to honor obligations smoothly, military and tech advantages cannot fully compensate. Over the long run, currency dominance rests on credible, stable institutions and sound macro policy, with hard power and innovation as important, but not sufficient, pillars.
Source: https://www.bis.org/publ/work821.htm (bis.org in Bing)
Keywords: US dollar dominance, military power, technology leadership, institutional credibility, macro fundamentals, global currency status
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