UBS Expects US Dollar Dominance to Persist for ‘Years to Come’

UBS Expects US Dollar Dominance to Persist for ‘Years to Come’ – UBS, a major Swiss investment bank, anticipates the continued dominance of the U.S. dollar, stating that the world will remain centered around the dollar for the foreseeable future, with limited space for other currencies to compete. 

Alejo Czerwonko, Managing Director and Chief Investment Officer Emerging Markets Americas at UBS Global Wealth Management, said on Monday that despite the recent Fitch Ratings’ downgrade: “We firmly believe we will be living in a U.S. dollar-centric world for years to come.”

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He provided three reasons to support his argument. Firstly, “global currency regimes are sticky,” the UBS chief investment officer stated. Noting that the U.S. dollar dominates financial markets and international trade, he explained: “Changes in the world’s dominant currency have historically taken a long time to materialize.”

“Even as great economic powers rise and fall, their currencies’ reserve status tends to survive well past the peak of their influence.” The second factor Czerwonko cited was liquidity, which “ranks at the very top of the properties that global reserve managers and those involved in international trade look for in a currency,” he said. The UBS managing director stressed that the USD “remains the world’s dominant currency in this realm.” 

The third reason he provided concerns “stability” and “safety.” Czerwonko detailed: “For all the challenges the U.S. financial and political system is experiencing, the country still ranks highly in various gauges including rule of law, regulatory quality and efficiency, and market openness (the prevalence of capital controls, for example).”

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The UBS executive concluded: “All in all, we think the dollar’s reign will live on. At the same time, it will likely make some room for competitors along the way.” “Rising geopolitical tensions could trigger quicker adjustments in the global currency order. Yet, there doesn’t seem to be a sole currency that stands to benefit,” Czerwonko noted.

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