Capital Securities News Bureau, May 9th, by Editor Xiao Xiang) As the erratic tariff policies of Trump last month triggered a wave of asset dumping in the United States, a new "de-dollarization" trend is gaining momentum across Asia...

Multiple signs indicate that demand for currency derivatives bypassing the dollar is rising among banks and brokers in Asia, as trade tensions have added urgency to the "de-dollarization" shift over the past few years.

Companies are receiving increasing numbers of trading requests, including many hedging transactions avoiding the dollar, involving currencies such as Renminbi, Hong Kong dollars, UAE dirhams, and euros. Meanwhile, a rather obvious phenomenon is that demand for Renminbi-denominated loans is becoming increasingly strong.

This attempt to seek alternative solutions once again shows that companies and investors are moving away from the U.S. dollar, the global reserve currency.

Earlier this week, Capital Securities News reported that renowned strategist Stephen Jen, known for the "dollar smile theory," warned of a potential $2.5 trillion "avalanche" of selling in Asia, which might weaken the long-term appeal of the dollar.

"Accelerated De-Dollarization"

In the past, even when transferring funds between two local currencies, the vast majority of foreign exchange transactions would use the dollar. For example, an Egyptian company needing Philippine pesos would usually first convert its local currency into dollars and then buy pesos with the received dollars.

However, according to conversations with industry insiders with employees from companies and financial institutions across Asia recently, attempts to bypass the dollar have been heating up, and enterprises are increasingly inclined to adopt strategies that skip the dollar intermediary.

Gene Ma, head of IIF's China Research Department, said: "The increase in transactions between non-U.S. currencies is largely due to technological advancements and improved liquidity. If the price is not worse than using the dollar, the transaction volume will naturally increase."

A person from a commodity trading company in Singapore said that financial institutions in Europe and other regions are increasingly promoting Renminbi derivative products linked to the dollar. Several people mentioned that the increasingly close trade ties between mainland China, Indonesia, and the Gulf region are also stimulating demand for non-dollar hedges.

According to an executive at a foreign bank in Indonesia, the company will set up a dedicated team in Jakarta this year to meet the growing demand for Indonesian rupiah to Renminbi transactions from local clients.

Clearly, this gradual shift away from the dollar is eroding the global financial system that has traditionally used the dollar as the main settlement currency. Over the past few decades, the dollar has been ubiquitous in emerging market debt financing and trade settlements. According to estimates, about 13% of daily trading volume uses the dollar as an intermediary currency.

In fact, long before Trump's unpredictable trade policies forced the market to completely rethink the dollar's status, the global position of the dollar was already under threat.

China has long been committed to promoting the internationalization of the Renminbi, signing currency settlement agreements with countries like Brazil and Indonesia to promote global usage of the Renminbi. The BRICS group, composed of emerging market countries, has also discussed de-dollarization. The outbreak of the Russia-Ukraine conflict in 2022 further sparked interest in "de-dollarization" among some countries, as Western sanctions against Russia quickly raised questions about whether the dollar had been weaponized.

RMB Gains Popularity

According to Swift data, RMB accounted for about 4.1% of global payments in March, still far below the 49% share of the dollar. However, some Chinese payments are completed through its self-built system, which is rapidly developing.

The Cross-border Interbank Payment System (CIPS), as a wholesale payment system specializing in cross-border RMB payment and clearing services, has seen steady growth in business volume and significantly expanded coverage since its launch in October 2015. By the end of December 2024, its services covered 185 countries and regions worldwide, processing a total of 175 trillion RMB in cross-border payments in 2024, representing a 43% year-on-year increase.

In March, the proportion of RMB used in cross-border transactions by Chinese investors and traders reached a record high. According to data released by the State Administration of Foreign Exchange, the proportion of RMB used in cross-border transactions by individuals and entities in China was 54.3% in March, totaling $724.9 billion. Exporters in China are also accelerating the conversion of dollars into RMB, reversing the previous trend where some exporters preferred to hold dollars due to concerns about the softening of the RMB exchange rate.

According to compiled industry data, exports from China to Southeast Asia increased by more than 80% over the five years ending in March 2025, while exports to the UAE and Saudi Arabia more than doubled. This far exceeds the growth rates of China's exports to the United States and the European Union.

Despite the typically higher cost of RMB hedging compared to the dollar, the low interest rates on related RMB loans make the overall cost attractive to borrowers.

Alicia Garcia Herrero, Chief Asia-Pacific Economist at Natixis, said, "The financing cost of RMB is only one-third of the dollar." However, she also mentioned that RMB still has certain limitations due to weak offshore liquidity.

Regardless, the volatility in the dollar related to tariffs clearly indicates that it is not just China and other major economies that are weakening the global position of the dollar. Trump's trade policies, disregard for traditional conventions, and continuous criticism of the Federal Reserve have all reinforced market perceptions: the dominant position of the dollar in the global economy is facing its greatest threat in decades.

In a recent report, Deutsche Bank analysts Oliver Harvey et al. wrote, "Given the dollar's extraordinary staying power, its position seems to require a truly epoch-making transformation of the international environment to be replaced. However, the risk of such a massive change is accumulating."

(Capital Securities News, Xiao Xiang)

Original article: https://www.toutiao.com/article/7502312807967244838/

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