Will the U.S. Dollar Stay Dominant? What Investors in SGD Should Know

As global dynamics shift and talk of de-dollarization grows, many Singapore-based investors are asking: Will the USD remain dominant? With SGD closely tied to the USD through trade and investment, understanding the dollar’s future is critical to making smart investing decisions.

Key Strengths of the U.S. Dollar

It is useful to evaluate whether the U.S. Dollar will continue to dominate as the global currency over the next decade and beyond. We can consider the following key factors:

1. Reserve Currency Status: According to International Monetary Fund (IMF), the USD is the world's primary reserve currency, held by central banks around the globe. This widespread adoption supports its long-term relevance. For example, local banks in Singapore hold almost as much non-bank deposits in USD as it does in SGD. The Sing-Dollar itself is a trade-weighted currency that includes USD as a major constituent.
2. Global Trade: The New York Stock Exchange (NYSE) and NASDAQ stand as the largest stock exchanges globally, commanding over $60 trillion in combined market capitalization. Their immense size reflects the concentration of major global companies listed on these exchanges, including tech giants, financial institutions, and other industry leaders. In these markets, assets are priced and exchanged in USD reinforcing the U.S. Dollar's pivotal role in the global financial ecosystems.
3. Financial System Integration: U.S. financial markets are deeply integrated into the global economy. Major financial assets in the world, including equities, bonds, commodities and derivatives, are valued and traded in USD. Many international transactions, including oil and commodity trading, are also conducted in USD. The U.S. Dollar's continued demand is sustained by its dominance as the preferred medium for global trade and its integral role in investments, loans, and international monetary flows.
4. Trust and Stability: Despite exchange-rate fluctuations, in relation to other currencies, the USD is seen as a safer and more stable currency. While the SGD is the preferred currency in Singapore, in all other Asian countries, USD is still the preferred international currency. Also, in many countries where there is rampant inflation or political unrest, USD is preferred over their local currencies as a store of value. In times of global uncertainty, investors tend to flock to USD-based assets as a haven.

Is It Time to Diversify Beyond the USD?

While the strengths of the U.S. Dollar are undeniable, its dominance faces several challenges.

• Growing economic alliances like BRICS are seeking to reduce reliance on USD through new trade mechanisms, signalling a trend toward de-dollarization.
• The diversification of reserves among nations, favouring alternatives like the Chinese Yuan, Euro, or Gold, adds further pressure. Gold, often regarded as a universal store of value, serves as an important hedge against currency volatility, and its rising appeal in reserve portfolios indicates a shift toward assets perceived as stable and independent from geopolitical influences.
• Moreover, the emergence of digital currencies and central bank digital currencies (CBDCs) presents a disruptive force that could erode USD's supremacy.
• Geopolitical tensions and concerns over Trump's U.S. fiscal policies has also spark debates regarding the long-term stability and reliability of the dollar.

While the USD's well-established role remains formidable, its dominance is not without challenges. Growing economic alliances, the rise of alternative currencies, and advancements in digital payments are shifting the global financial landscape, presenting potential disruptions to the dollar's longstanding supremacy.

Political upheavals, geopolitical shifts, and emerging currencies will also play a critical role in shaping the future of the global currency hierarchy. Nevertheless, the U.S. Dollar's foundational role within economic and financial systems makes it likely to remain significant for decades to come.

What Can SGD Investors Do?

While the U.S. Dollar future dominance is no longer guaranteed, it remains a cornerstone of the global financial system. For SGD investors, this presents both risks and opportunities.

✅ Hedge against USD volatility — Consider funds that are SGD-denominated or SGD-hedged classes. Explore gold, or even commodities in your portfolio mix.

✅ Capitalize on USD — Some USD-denominated investments can be more cost efficient and provide currency diversification.

✅ Monitor BRICS and central bank digital currency developments — Monetary policies play a crucial role in shaping long-term currency dynamics.

✅ Stay informed and nimble — currency trends can shift rapidly based on geopolitics, policies, and technology.

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