Digital asset managers strongly oppose the adoption of digital assets

Digital asset managers strongly oppose the adoption of digital assets

In a discussion led by Max Castelli and Yara Aziz, the global response to Liberation Day, proclaimed by President Donald Trump on 2 April, was examined. Meanwhile, Nat Benjamin of OMFIF outlined key considerations to foster a steady-state liquidity environment, while a group of experts, including Michael Paulus, Alberto Torres, Sunil Kaushik, Natalie Tsui, Tobias Cheung, and Citi's public sector banking team, posited that central banks are turning back to gold, with the role of gold changing in the process.

One of the potential alternatives to the US dollar as the global reserve currency is the euro. Although the European Union's large economy, strong central bank (the European Central Bank), and robust financial markets support the euro's viability, the lack of a common treasury and unified European bond market restricts its attractiveness compared to the US dollar.

China has taken steps to internationalize the renminbi, aiming to reduce global dependence on the dollar. However, its share of global reserves remains low, partly due to China's capital controls, less developed financial markets, and political and legal uncertainties.

Countries in the BRICS group have discussed creating a shared currency to support trade without dollar dependence. However, structural hurdles like differing monetary policies, weaker central banks, and lack of institutional cohesion make such a currency currently unfeasible.

Emerging digital currencies issued by central banks or private stablecoins could challenge dollar dominance by offering alternative payment systems that bypass traditional dollar-based infrastructure. These remain nascent but could reshape the global monetary order over time.

A diminished dollar role would reduce US geopolitical leverage, especially its ability to enforce sanctions via the dollar-dominated global financial system. Rising alternatives signal multipolarity and less Western financial dominance. Countries like China and Russia promote alternatives partly to hedge against US sanctions and influence.

The persistence of deep and liquid US Treasury markets currently underpins dollar dominance. A shift away from the dollar could fragment global markets, increase transaction costs, and reduce liquidity. Conversely, it might reduce US borrowing advantages and lead to higher interest rates domestically.

A multipolar reserve currency system may emerge, with multiple currencies used for reserves and trade. This diversification could reduce systemic risks tied to a single currency but also complicate international finance and policymaking.

Despite growing calls for de-dollarization, the US dollar remains dominant due to the size and stability of the US economy, deep financial markets, and legal infrastructure supporting dollar assets. OMFIF's Global Public Investor 2025 found that no central bank surveyed holds any digital assets, and 93% have no intention of doing so.

Jens Søndergaard, currency analyst at Capital Group, writes that a weaker dollar amid US policy volatility is creating opportunities for other currencies, but there is no real alternative yet. Yara Aziz, senior economist at OMFIF, writes that investors and reserve managers are reconsidering what stability means in a more fragmented landscape.

Jesper Koll, global ambassador and expert director of Monex Group, Japan, writes that de-dollarisation is creating an opportunity for Japan to move closer to the limelight. Aaron Hurd, senior portfolio manager, currency group, State Street Investment Management, states that lower returns and higher risk mark a change in dynamics for the US currency.

Pierpaolo Benigno and Edoardo Reviglio suggest that Europe has a strategic opportunity to develop its own safe asset. Harold James, Claude and Lore Kelly Professor at Princeton University, writes that countries have historically turned to gold in periods of instability, and today's environment is no different.

Massimiliano Castelli, head of strategy and advice, sovereign institutions, UBS Asset Management, asserts that reports of the dollar's demise are greatly exaggerated. Mark Sobel, US chair at OMFIF, writes that although the administration's actions may erode the currency's dominance, the dollar is not going anywhere soon.

Sources: [1] OMFIF (2021). The Future of the Dollar: Sovereign Perspectives. [2] OMFIF (2020). The Future of the Dollar: The Road to a Multi-Polar World. [3] OMFIF (2019). The Future of the Dollar: The Road to a Multi-Polar World.

1. The European Union's strong economy, central bank, and financial markets support the euro's viability as a potential alternative to the US dollar as the global reserve currency.
2. China's share of global reserves remains low due to capital controls, less developed financial markets, and political and legal uncertainties, hindering its efforts to reduce global dependence on the dollar with the internationalization of the renminbi.
3. The BRICS group has discussed creating a shared currency to support trade without dollar dependence, but structural hurdles like differing monetary policies, weaker central banks, and lack of institutional cohesion make such a currency currently unfeasible.
4. Emerging digital currencies issued by central banks or private stablecoins could challenge dollar dominance by offering alternative payment systems and reshaping the global monetary order over time.
5. A shift away from the dollar could fragment global markets, increase transaction costs, and reduce liquidity, but it might also reduce US borrowing advantages and lead to higher interest rates domestically.
6. Although growing calls for de-dollarization are creating opportunities for other currencies, the US dollar remains dominant due to the size and stability of the US economy, deep financial markets, and legal infrastructure supporting dollar assets.
7. Investors and reserve managers are reconsidering what stability means in a more fragmented landscape, as the persistence of a multipolar reserve currency system may reduce systemic risks tied to a single currency but also complicate international finance and policymaking.
8. Some analysts, such as Jens Søndergaard and Aaron Hurd, suggest that Europe and Japan, respectively, have strategic opportunities in the context of de-dollarization, while others like Mark Sobel argue that the dollar is not going anywhere soon.

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