Global Shift to Bypass the Dollar Is Gaining Momentum in Asia

(Bloomberg) — Banks and brokers are seeing rising demand for currency derivatives that bypass the dollar, as trade tensions add a sense of urgency to a years-long shift away from the greenback.

Firms are receiving more requests for transactions including hedges that sidestep the dollar and involve currencies such as the yuan, the Hong Kong dollar, the Emirati dirham and the euro. There’s also demand for yuan-denominated loans, and a bank in Indonesia is setting up a desk for the Chinese currency.

The vast majority of foreign-exchange trades use the dollar even if they’re transferring money between two local currencies. For example, an Egyptian company wanting Philippine pesos will typically transfer its local currency into the greenback before buying pesos with the dollars it receives. But companies are increasingly looking at strategies that skip the dollar’s role as a go-between.

The attempt to find alternatives is another sign that companies and investors are turning their backs on the world’s reserve currency, which was hit with a wave of selling this week amid shifting bets on trade deals. Stephen Jen, a high-profile strategist known for his work on the “dollar smile” theory, has warned of a potential $2.5 trillion “avalanche” of dollar selling that could derail the currency’s long-term appeal.

The greenback’s tumble this week reflected short-term anxieties about trade tensions that are now dominating sentiment. But structural changes in how the greenback is used — and by whom — point to a longer term trend of de-dollarization.

“The increase in transactions between non-US currencies is largely due to technological development and increased liquidity,” said Gene Ma, head of China research at the Institute of International Finance. “The trading parties feel that the price may not be worse than using the US dollar, so transactions naturally pick up.”

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