For decades, dollars have been the world’s common financial language. Central banks everywhere hold dollars as a way to safely store their wealth. Countries, businesses, and people use it to trade; around 90% of all foreign exchange transactions involve dollars. It’s the world’s money, the world’s “reserve currency”..
Investors have valid reasons to be concerned about wild swings in the global currency market over the past few days, according to one market veteran, Since late 2022, Stephen Jen, chief executive and co-chief investment officer of Eurozone SLJ Capital, has been warning about the possibility that the U.S. dollar could be vulnerable to a sudden, disorderly depreciation, which he has likened to an “avalanche.”
the sudden spike in the value of the Taiwan dollar and other Asian currencies could be a prelude to a bigger selloff in the greenback, “We continue to believe the risks of investors being blind-sided by such a non-linear sell-off in the dollar continue to rise. The sharp sell-off in [the Taiwan dollar] last week is such an example. There will be others, we predict,” they said in the report.
They calculated that the pile of at-risk dollars held by China, Taiwan, Malaysia, Vietnam and other major Asian exporters has topped $2.5 trillion, a tally that has recently been rising by about $500 billion a year. Some of this money has been parked in liquid money-market instruments that aren’t included in data on international investment flows, Jen said.
Another concern has been that President Donald Trump’s trade agenda could inspire foreign authorities to hold fewer dollars in reserve. Yet global dollar reserves held by foreign central banks have been falling for years, and investors have seen few signs so far that foreign investors have moved to meaningfully reduce their holdings of U.S. bonds.
Right now the biggest vulnerability, in Jen’s view, is China. Since the start of 2024, the People’s Bank of China has been closely managing the yuan, helping to keep its value against the dollar stable even as the greenback has weakened against most rivals. The ICE U.S. Dollar Index.
