By Michelle Jamrisko
It might take decades before King Dollar truly loses its crown, but markets have a trade to make in the meantime.
Emerging-market currencies stand to gain from the gradual chipping away of the dollar’s hegemony, as dozens of economies set up transaction schemes that avoid the greenback, according to Lumen Capital Investors.
“De-dollarization is a long-term game,” said Laurent Lequeu, head of portfolio management at Lumen Capital in Singapore, speaking on Bloomberg Radio. “But of course, if you want to position yourself for the next three to five years, this is structurally positive for local currency in emerging markets, especially in the fixed-income asset class.”
An aggressive diplomatic push by Chinese President Xi Jinping and the slow but steady rise in yuan use for transactions has contributed to the international chatter around reducing global use of the dollar. Xi’s latest guest, Brazil’s Luiz Inacio Lula da Silva, cast stronger ties with Beijing as an avenue to reorient global geopolitics and challenge the US- and Europe-led institutions and norms that have dominated global finance for decades.
Other governments, too, have become louder about the need to push back on what they see as dollar weaponization — including through the US sanctions on Russia for the war in Ukraine — and to set up alternative, non-dollar currency arrangements.
Still, the relatively slow development of non-dollar payment structures has prompted some in traditional economic circles to say it’s still far too soon to predict the greenback’s demise. Lequeu admitted that too, saying, “shorter-term, I think the dollar will continue to dominate world trade.”