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Business Times
09-06-2025
- Business
- Business Times
Greenback's reign isn't over, but cracks are showing
THE US dollar remains the undisputed heavyweight in the global financial system: Central banks hoard it; global trade is priced on it; and financial markets are built around it. However, that dominance, long taken for granted, is being tested. From shifting geopolitical alliances to evolving investment behaviour, the forces nibbling at the dollar's dominance are multiplying. There is no clear successor so far, but cracks are forming in its foundation. For decades, the dollar has anchored the global monetary system, thanks not only to the US' economic power, but also to its deep, liquid capital markets and perceived political stability. However, these advantages are no longer absolute. International investors, once content to be heavily exposed to US assets, are starting to hedge their bets more actively. Combine that with rising US debt, policy unpredictability and a trend toward regional currency use in trade, and the case for a weaker dollar, at least in the near term, starts to build. Dollar's gradually diminishing role Let us be clear: there is still no real alternative to the dollar. The euro lacks a true fiscal union and deep bond markets. The yuan remains constrained by capital controls. Even with all the talk about multipolar currencies, the dollar remains deeply embedded in how the world trades, borrows and invests. The dollar currently makes up 58 per cent of global foreign exchange reserves, more than 80 per cent of global FX turnover and a third of global debt is issued in dollars. These are not numbers that shift quickly. Two decades ago, the dollar's reserve share was closer to 70 per cent. Central banks have steadily diversified – into the euro, yen, sterling, and the 'others' category that includes the Australian dollar, Canadian dollar and Swiss franc. Growing geopolitical tensions and trade fragmentation are only accelerating that shift. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Trade fragmentation chips away at dollar dominance The dollar still dominates trade between advanced and emerging economies (EM). But trade between EMs is increasingly bypassing the dollar, with more transactions being settled in local currencies or alternatives. As at 2022, about three quarters of global trade involved advanced economies, and only a quarter of it was EM to EM or EM to China trade. That smaller slice in trade among EMs is where de-dollarisation is gaining ground. It's not enough to unseat the greenback, but it is reshaping parts of the global economy. Structural risks from within The bigger risks to the dollar may come from within. The US federal debt is projected to hit 99 per cent of GDP in 2024 and 118 per cent within a decade, according to the US Congressional Budget Office. This raises concerns about the long-term appeal of US government bonds (Treasuries) as the world's preferred safe asset. Foreign ownership of Treasuries is already slipping. For years, overseas investors, especially official institutions such as central banks, held large portions of US debt. However, with slower reserve accumulation and greater diversification, foreign holdings of Treasuries and corporate bonds have fallen to about 30 per cent of outstanding amounts. There are no signs of a broad sell-off, but the US may have to offer higher yields to keep attracting global capital as issuance continues to rise. Hedging FX risks increasingly important Beyond central banks and trade, a quiet shift is happening among institutional investors. Foreign investors have accumulated US$56.6 trillion in US financial assets, up from just US$2.2 trillion in 1990. That includes US$16.5 trillion in equities and another US$14.5 trillion in debt securities, with foreign direct investment accounting for a further US$16.5 trillion. For many years, many investors – pension funds, insurance companies, sovereign wealth funds – did not hedge their dollar exposure aggressively. The dollar's historical tendency to rise in times of stress made it a natural portfolio hedge. This so-called 'USD smile' worked well for years, but it is fading. Treasuries and the dollar have become less reliable during market stress. That has made the cost of being unhedged far more painful. As a result, we are seeing early signs of increased FX hedging activity. If this continues, it could create sustained downward pressure on the dollar through active USD selling. Gold: diversification in uncertain times If there is a winner from the de-dollarisation push, it is gold. Central banks, especially those in EMs, have ramped up gold purchases. The People's Bank of China, for instance, resumed gold buying in 2022 after a three-year pause. The World Gold Council said net central bank gold purchases reached 1,045 metric tonnes in 2024. Gold now accounts for an estimated 14 per cent of global reserves, up from 8.3 per cent in 2018. Part hedge, part symbol, the appeal of the yellow metal is clear in a world of rising inflation, geopolitical friction and currency uncertainty. What this means for portfolios In the near term, these forces point to a softer dollar, especially if FX hedging continues to increase. Over time, the dollar is unlikely to lose its primacy, but its share in global reserves, debt markets and transactions may continue to gradually erode. Investors, policymakers and institutions would be wise to plan for a world where the dollar's leadership becomes more contested. It is important for global investors to distinguish between cyclical and structural dollar weakness. Cyclical weakness, driven by interest rate differentials, relative US equity market underperformance or mean reversion in terms of valuations, calls for tactical repositioning away from the dollar. But structural weakness, rooted in lasting shifts in global trade, reserve composition and capital flows, would require rethinking strategic asset allocation. For now, tactical allocation shifts would involve increasing exposure to non-US equities and local-currency bonds, or adding to gold on dips – not just as a short-term hedge, but also as a long-term diversifier. In structural allocations, the dollar remains a foundation currency, but portfolios will likely need to be tweaked in the coming years to reflect the global rebalancing of economic, trade and geopolitical shifts. The writer is head of asset allocation at Standard Chartered Bank's wealth solutions chief investment office
The Age
05-06-2025
- Business
- The Age
Master of deception: How Trump is fudging the numbers
When looking at the latest US Congressional Budget Office analysis of the Trump administration's proposed budget and tariff policies, the saying 'lies, damned lies, and statistics' comes readily to mind because, at the heart of both sets of policies, is financial legerdemain. The CBO's verdict on the One Big Beautiful Bill Act now being negotiated by Senate Republicans is that, in its current form, it would add $US2.4 trillion ($3.7 trillion) to US government's $US36.2 trillion of debt over the next decade. A separate CBO analysis of the Trump tariffs, however, said it could raise $US2.8 trillion over the same period, suggesting that it would more than cover the increased spending. At the core of the increase in spending is the extension of Trump's 2017 tax cuts, which mainly favoured companies and wealthy households. Those cuts had a 'sunset' clause – they were scheduled to end in December this year – which was an accounting artifice to keep their cost below $US1.5 trillion rather than multiples of that amount had they been factored into the CBO's usual 10-year projections. Loading In the One Big Beautiful Bill, the Republicans are emulating their 2017 strategy, with a range of the Trump campaign pledges on cuts to the taxes on tips, overtime, social security benefits for seniors and the interest on car loans supposed to expire by the end of his term in January 2029. Between them, their cost amounts to nearly $US300 billion over that period. If they were extended – and there would be significant political pain for the next administration if they weren't extended – their cost over the normal 10-year budget assessments would be closer to $US1 trillion. The cost of extending the $US3.8 trillion of core tax cuts – the extension of the 2017 tax package – would increase to $US5.3 trillion if they remain in place over the decade.
Sydney Morning Herald
05-06-2025
- Business
- Sydney Morning Herald
Master of deception: How Trump is fudging the numbers
When looking at the latest US Congressional Budget Office analysis of the Trump administration's proposed budget and tariff policies, the saying 'lies, damned lies, and statistics' comes readily to mind because, at the heart of both sets of policies, is financial legerdemain. The CBO's verdict on the One Big Beautiful Bill Act now being negotiated by Senate Republicans is that, in its current form, it would add $US2.4 trillion ($3.7 trillion) to US government's $US36.2 trillion of debt over the next decade. A separate CBO analysis of the Trump tariffs, however, said it could raise $US2.8 trillion over the same period, suggesting that it would more than cover the increased spending. At the core of the increase in spending is the extension of Trump's 2017 tax cuts, which mainly favoured companies and wealthy households. Those cuts had a 'sunset' clause – they were scheduled to end in December this year – which was an accounting artifice to keep their cost below $US1.5 trillion rather than multiples of that amount had they been factored into the CBO's usual 10-year projections. Loading In the One Big Beautiful Bill, the Republicans are emulating their 2017 strategy, with a range of the Trump campaign pledges on cuts to the taxes on tips, overtime, social security benefits for seniors and the interest on car loans supposed to expire by the end of his term in January 2029. Between them, their cost amounts to nearly $US300 billion over that period. If they were extended – and there would be significant political pain for the next administration if they weren't extended – their cost over the normal 10-year budget assessments would be closer to $US1 trillion. The cost of extending the $US3.8 trillion of core tax cuts – the extension of the 2017 tax package – would increase to $US5.3 trillion if they remain in place over the decade.
Express Tribune
21-05-2025
- Business
- Express Tribune
Trump launches $175 billion Golden Dome defense system, seeks allied support
Listen to article US President Donald Trump on Tuesday unveiled the design of the proposed $175-billion Golden Dome missile defence shield and appointed US Space Force General Michael Guetlein to lead the project. The system, aimed at countering missile threats from China and Russia, will rely on hundreds of satellites to detect, track and potentially intercept enemy launches. Speaking at a White House press conference, Trump described the initiative as essential to "protect our homeland." He also revealed that Canada had expressed interest in joining the effort. Canadian Prime Minister Mark Carney's office confirmed that security and economic ties with the United States were under review and that talks included 'strengthening NORAD and related initiatives such as the Golden Dome.' Trump said he hopes the system will be operational by the end of his term in January 2029. However, analysts have questioned the feasibility of that timeline and the programme's true cost. "This is what Reagan envisioned with 'Star Wars'," Trump said, referencing the 1980s Strategic Defense Initiative. "We finally have the technology to do it." While Republican lawmakers back the idea, the project faces political and financial hurdles. The US Congressional Budget Office recently estimated the full cost could exceed $831 billion over two decades. Some Democrats have voiced concerns about transparency and the selection process for key contractors, with companies like SpaceX, Palantir and Anduril seen as potential frontrunners. "This isn't just about traditional defence anymore," said Senator Kevin Cramer. "It's a new ecosystem driven by software, sensors and private innovation." L3Harris Technologies, Lockheed Martin and RTX Corp were among firms mentioned as possible contributors to the effort. L3Harris has already invested $150 million into a facility in Indiana producing tracking satellites that could support the Golden Dome. Trump's version of the shield takes inspiration from Israel's Iron Dome, but on a much larger, space-based scale, with arrays of surveillance and intercept satellites designed to eliminate threats early in their flight. Initial production is expected to tap into existing Pentagon programmes. Alaska, Florida, Georgia and Indiana were named as states likely to benefit from early deployment and industrial investment. Funding remains uncertain. Republicans have proposed a $25-billion initial outlay as part of a broader $150-billion defence package, but the measure is tied to a contentious reconciliation bill. 'Unless reconciliation passes, the funds for Golden Dome may not materialise,' said one industry executive who requested anonymity. 'This puts the entire project timeline in jeopardy.'
Time of India
06-05-2025
- Business
- Time of India
US air-sea platforms for nukes at end-of-service period: Report
This is a representational image MUMBAI: The cost to operate, sustain, and modernize current nuclear forces and purchase new ones in the US will shoot up to $946 billion over the 2025-2034 period — 25% higher than the 2023 estimate — which works out to an average of about $95 billion a year, according to the latest estimate of the US Congressional Budget Office The report released in April shows that the estimate includes $357 billion to operate and sustain current and future nuclear forces and other supporting activities; $309 billion to modernize strategic and tactical nuclear delivery systems and the weapons they carry; $72 billion to modernize facilities and equipment for the nuclear weapons laboratory complex; $79 billion to modernize command, control, communications, and early-warning systems, and $129 billion to cover potential additional costs in excess of projected budgeted amounts estimated using historical cost report states that the current estimate of costs for the 2025-2034 period is 25% (or $190 billion) larger than its 2023 estimate of $756 billion, which covered the 2023-2032 period. The report states that nuclear weapons have been an important component of US national security since they were developed during World War the Cold War, nuclear forces were central to US defence policy, and a large arsenal was that time, nuclear forces have figured less prominently in defence policy than conventional forces have and, for several decades, the US did not develop and field new nuclear weapons or delivery systems, choosing instead to sustain or extend the life of existing report also points out that the nation's current nuclear forces are reaching their end-of-service period. US nuclear forces comprise submarines that launch ballistic missiles (SSBNs), land-based intercontinental ballistic missiles (ICBMs), long-range bomber aircraft, and shorter-range tactical aircraft capable of delivering both conventional bombs and nuclear states that over the next two decades, these legacy weapon systems will have to be refurbished or replaced with new ones if the US were to continue fielding those capabilities. In addition, it says, many of the capabilities that support those nuclear forces — including the command, control, communications, and early-warning systems that DoD (department of defence) operates and the complex of laboratories and production facilities that DOE (department of energy) operates — are slated to be report also says the Sentinel ICBM programme has encountered significant cost growth in recent years.
