The Dollar Under Strain
Where does the dollar go from here? The foundations of its global dominance are showing signs of strain. In early 2025, the DXY index dropped below 98—its lowest point in nearly three years—marking a decline of more than 9% as markets reacted to mounting fiscal and political risks in the United States. With national debt exceeding US$37 trillion, roughly 120% of GDP and climbing, and political pressure from the Trump administration eroding the Federal Reserve’s independence, the long-held view of U.S. Treasuries as the world’s safest asset is weakening.
In response, central banks worldwide are accelerating de-dollarization strategies, shifting reserves into gold, regional currencies, and sovereign digital assets.
The implication is clear: reliance on the dollar has shifted from a safe default to a growing liability.
The Rise of Alternatives
China’s promotion of the RMB and its digital counterpart, the eCNY, highlights the rise of alternative systems. Beyond bilateral swap agreements and RMB trade settlements, Beijing has formalized cooperation with ASEAN and the Gulf Cooperation Council (GCC) to expand cross-border settlements outside the dollar system. In late 2023, it signed a US$6.98 billion swap with Saudi Arabia and renewed a US$4.89 billion swap with the UAE, both paired with agreements on digital currency collaboration. At the 2025 ASEAN-GCC-China summit, member states pledged to explore local-currency settlements and digital payment systems to strengthen regional trade. While eCNY transaction volumes remain modest, these moves mark a significant step in building non-dollar financial infrastructure. Sovereign digital currencies like the eCNY are no longer experimental—they are evolving into practical hedging tools against dollar risk.
By contrast, the United States has attempted “re-dollarization” by steering stablecoin issuers to invest in Treasuries, effectively turning crypto demand into a source of support for its debt market. This strategy may deliver limited short-term benefits, but the stablecoin market—worth under US$200 billion—pales in comparison to the multi-trillion-dollar scale of central bank reserves.
More importantly, because stablecoins remain under U.S. jurisdiction and regulatory oversight, they cannot serve as dependable hedges against sanctions or fiscal instability. Indeed, their growing adoption could even accelerate the shift toward non-dollar alternatives by making global markets more comfortable with digital settlement instruments.
Where does the Dollar go from here?
Taken together, these dynamics point to a structural rebalancing of the global financial system.
As U.S. debt swells without economic justification, the dollar weakens, and confidence in the Federal Reserve wanes, central banks are broadening their reserve strategies to include gold, sovereign digital currencies, and regional settlement frameworks.
At the same time, private markets are carving out new liquidity channels: offshore stablecoins pegged to regional currencies such as the RMB, HKD, or SGD are enabling trade and settlement beyond U.S. oversight, reinforcing official de-dollarization efforts.
In this context, Vector Capital Management (VCM) has positioned itself at the forefront by partnering with regional stablecoin issuers to provide institutional infrastructure and advisory services across minting, burning, custody, and treasury management. By delivering secure, scalable support, VCM bridges the gap between emerging digital currencies and the reserve diversification strategies reshaping global finance.
The conclusion is clear: the international monetary order is moving toward a more decentralized, multi-currency future—driven not only by sovereign actors but also by private institutions.
About Vector Capital Management
We are a premier asset management firm, blending deep Asian market expertise with global investment reach. Our experienced team delivers end-to-end solutions across tax efficiency, regulatory compliance, asset structuring, treasury management, and digital asset strategies.
With over two decades of experience at leading global financial institutions, our team brings deep expertise across fixed income, FX, derivatives, and digital assets. We combine onshore Asian market proficiency with a global macroeconomic perspective to navigate regional complexities and capture cross-border opportunities.
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