US dollar: ‘Wounded hegemon’ or secure as most powerful currency on earth?

Standard Bank’s direct link into China’s CIPS enables African-Chinese trade settled in renminbi, reflecting a broader BRICS and Global South push (BRICS Pay, Bridge digital currency, Project mBridge) to reduce reliance on the US dollar, which still underpins >80% of international trade while the renminbi accounts for under 10%. Analysts point to incentives driven by geopolitical frictions, US policy unpredictability and the $38tn+ US national debt as factors prompting gradual dedollarisation, though practical frictions (currency liquidity, settlement infrastructure, need for widely accepted reserves) limit rapid change. The near- to medium-term outlook sees the dollar remaining the global reference and main reserve currency, but with a structural “slow burn” decline that raises long-term FX reserve diversification and commodity-pricing (petrodollar/petroyuan) risks for investors.

Analysis

Market structure: Winners are banks and payment platforms that enable RMB/alternative clearing (Chinese banks, Standard Bank/HSBC as RMB corridors) and hard-asset owners (gold, silver, commodities exporters) because direct CNY settlement cuts conversion fees and creates reserve demand for non‑USD assets. Losers are parts of the correspondent banking chain, USD funding businesses and SWIFT‑centric rent takers; expect a multi-year reallocation of settlement flows rather than an abrupt market-share collapse (RMB <10% of trade today → incremental share gains measured in single-digit %-points per year). Cross-asset, expect higher real demand for gold/commodities and greater FX volatility in EM pairs as liquidity fragments.

Risk assessment: Tail risks include US retaliatory measures (secondary sanctions, restricted USD access) or China capital controls that freeze CNH liquidity — both could trigger sharp FX/funding squeezes within days and systemic dislocations over weeks. Hidden dependencies: adoption depends on CNH liquidity, local reserve management and correspondent bank connectivity; if CIPS adoption outpaces CNH convertibility, expect operational FX bottlenecks. Catalysts to watch in next 30–180 days: BRICS Bridge demo at the India summit, number of banks connecting to CIPS (threshold: +10 major banks in 6 months) and any US Genius Act rule changes on dollar stablecoins.

Trade implications: Immediate (days–weeks) – stay USD‑neutral to modestly USD‑long as safe‑haven; short term (1–6 months) – increase gold (GLD/IAU) exposure as insurance and buy protection on USD (small UUP put). Medium/long term (6–36 months) – accumulate selective RMB and EM banking exposure (CYB, HSBC, select EM banks) sized 1–3% each as reserve diversification and fee capture play; expect EM FX vols to rise 20–40% vs history, so prefer option‑efficient deployments (call spreads, covered positions).

Contrarian view: The market underestimates the stickiness of invoice currency and overestimates speed of dedollarisation — sterling’s decline took decades; fragmentation can raise corporate hedging costs and actually benefit large global banks that manage FX pools. Don’t assume a linear USD fall; instead overweight asymmetry: small, low-cost hedges for a slow “drift” scenario, and keep dry powder for a policy shock (sanctions or petroyuan price shock) that could produce >10% moves in FX/commodity prices within weeks.

Key Decisions for Investors

• Within 30 days, establish a 2–3% strategic long in gold via GLD or IAU as insurance (target hold 6–18 months); trim 50% if gold rallies >15% from entry or cut fully if it drops >7% from purchase price.
• Over the next 3–12 months, build a 1–2% position in CYB (WisdomTree Chinese Yuan Strategy Fund) on dips (accumulate if CNH/USD weakens >3% from today) to gain RMB exposure tied to CIPS adoption; increase allocation by another 1% if 5+ major banks join CIPS in 90 days.
• Allocate 2% to bank exposure that benefits from RMB clearing – buy HSBC Holdings plc ADR (HSBC) for a 12–36 month horizon; finance purchase by selling a 12‑month out‑of‑the‑money (OTM) call (10–15% OTM) to reduce cost, and exit/trim if HSBC underperforms regional bank index by >10% in 6 months.
• Purchase USD‑decline insurance: buy 6‑month put on UUP (size 0.5% of portfolio notional) or equivalent EUR call structure to protect against >5% USD depreciation in 3–6 months; cost threshold: do not pay >1.5% premium of notional.
• Reduce exposure to pure correspondent‑bank fee income strategies and long positions in SWIFT‑dependent fintech incumbents by 1–2% total; redeploy into the above hedges and keep a 2% cash buffer to add on policy/catalyst events (BRICS summit outcomes, major connectivity announcements).