USD retains dominance in global liquidity, Macquarie Capital warns of risks
2025.01.13 17:27
Macquarie Capital strategists have asserted the enduring dominance of the US dollar (USD) as the principal currency in global liquidity, highlighting the absence of a viable alternative.
Despite the rising interest in other options such as BRICS currencies, , and gold, the USD continues to be the unparalleled leader for transactions, asset valuation, and wealth storage. According to Macquarie, all other options are negligible in comparison, often amounting to mere rounding errors.
The firm points out that the USD’s persistent strength, fueled by what they term “exceptionalism” and a potential “insanity premium,” represents the most significant risk to the global financial system.
A rapid appreciation of the USD has the potential to squeeze global liquidity and deflate demand. This scenario could lead to disorderly market liquidations and strip non-USD economies of much-needed monetary flexibility.
Macquarie underscores the critical role of the USD in the global economy, noting its use in 73% of global non-resident financing, equivalent to approximately $13 trillion.
The currency also accounts for around 48% of SWIFT transactions and 88% of foreign exchange trades. While its share has slightly decreased, the USD still makes up about 58% of global reserves.
The strategists argue that no other currency is currently positioned to dethrone the USD, as a global currency must be backed by a deep pool of securities, freedom from capital controls, and the capacity to run current account deficits.
Additionally, it requires a credible institution to support its status and the ability to generate liquidity as necessary.
Investors are advised to remain alert, but Macquarie suggests that the more probable adverse outcome is a reduced capacity for emerging market central banks to stimulate their economies without causing instability in the global financial system or asset markets.
Barring significant policy blunders, the firm believes that the situation should continue to underscore US exceptionalism and secular growth factors, rather than cyclicality or defensive market strategies.
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