Executive Summary:
For decades, many global investors have viewed exposure to the U.S. dollar as a form of built-in crisis insurance. During periods of market stress, the dollar has often appreciated, helping to offset losses elsewhere in portfolios.
This paper examines whether that assumption remains valid in a world characterized by rising geopolitical fragmentation, shifting trade relationships, changing capital flows, and growing questions about the future structure of the international monetary system.
The authors analyze the historical role of the U.S. dollar as a safe-haven asset and assess whether investors should continue relying on it as a source of protection during market crises. Their analysis suggests that investors should be cautious about assuming that historical relationships will necessarily persist in the future.
For CIOs, CROs, pension funds, and asset managers, the paper highlights the importance of regularly reassessing strategic currency exposures rather than relying on historical experience alone. For policymakers and regulators, the research underscores how changes in the international financial architecture could affect capital flows, portfolio allocation, and financial stability.
The broader message is straightforward: assumptions that worked in the past should not be treated as permanent features of the future.
Three Main Takeaways
- Institutions should regularly reassess long-standing assumptions about the U.S. dollar’s role as a safe-haven asset and source of crisis protection.
- Geopolitical fragmentation and structural changes in the global economy may alter the diversification benefits historically associated with unhedged U.S. dollar exposures.
- Building portfolio resilience requires preparing for regime shifts rather than assuming that historical relationships will persist indefinitely.
Special Issue on Emerging Risks by GRI in partnership with the Journal of Portfolio Management