The Dollar’s Dominance Is Unwinding in Asia
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Whatever challenge comes next, let Microsoft help you keep pushing forward. For more details, visit Microsoft.com slash challengers. Bloomberg Audio Studios. Podcasts. Radio. News. On a Friday afternoon earlier this month, Bloomberg's Ruth Carson was monitoring Asian markets and hoping for calm ahead of her weekend.

Truth to be told, I was hoping for a very quiet Friday because it was a public holiday here in Singapore on Thursday. But boy, it definitely didn't end up that way for sure.

Ruth covers the foreign exchange market from Singapore. And on that particular Friday, an Asian currency that rarely makes headlines started to surge. The Taiwan dollar at around 11.30 local time in Taipei, it jumped by about 2%. But it didn't just stop there. By the time markets had closed, the Taiwan dollar was up about 3% higher against the U.S. currency to put things into perspective.

It was the single largest one-day advance since 1988. This is a normally incredibly sedate currency. Something had clearly blown up. The blow-up put market watchers globally on high alert.

And on Monday morning, the surge continued. You're looking at the Taiwan dollar up against virtually everything and up substantially against everything. Everything is down against the Taiwan dollar. The Taiwan dollar's move was so large that it was affecting, you know, peers in Asia. For instance, the Malaysian ringgit.

rose more than 1% on Friday. On Monday, again, boom, we saw another 1% move. The South Korean won, jumped more than 2% at one stage. And then we saw Hong Kong authorities ramp up sales of the local dollar because the greenback was just weakening. So it was a spiral effect. And imagine a whirlpool, just everything being sucked in.

Eventually, the Taiwan dollar stabilized, but the spike underscored a much larger issue. De-dollarization, a movement away from U.S. assets as markets grapple with shifts in U.S. economic policy. And Ruth, stepping back, why is it such a big deal that Taiwan's dollar surged to these unprecedented levels?

It was hugely disruptive on a lot of levels of the economy and also society.

If you're a sophisticated investor and you're caught out on the wrong side of the trade, you would have seen huge losses because this is a normally stable currency. On an economic level, a surge of this magnitude can really impact exporters, traders, insurers. And this is coming at a time when the US was imposing tariffs, right, on most of the world and people are trying to digest that. So there would have been also people across markets that will be thinking about the other side of the trade, which is the dollar.

The greenback is on 88% of all trades in the world. So dominant that every single trade deal, every single currency exchange, 88% of that every minute involves the dollar. And people started thinking, are we wrong? Did we get the dollar wrong here? And if so, maybe I should just really sell it and sell it against what?

Welcome to the Big Take Asia from Bloomberg News. I'm Rebecca Chung Wilkins. Every week, we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever-shifting region.

Today on the show, Asia's dollar unwind. Are Asian nations rethinking their traditional approach of hoarding U.S. dollars? And what does this mean for the global economy as confidence in the dollar faces increasing scrutiny? For decades, the U.S. dollar has been the world's dominant currency. It's deeply embedded in governments, central banks, life insurers, and even your investment and retirement funds.

That's unlikely to change for the time being. But what we saw happen with Taiwan's currency earlier this month is extremely significant. It shows the degree to which investors are looking for viable alternatives to the dollar. Unprompted, a hedge fund manager told me this is a reverse Asian financial crisis we're seeing right now.

Bloomberg's Ruth Carson says the spiral sparked fears that Taiwan's dollar surge wasn't a one-off event. What I found really profound was that soul-searching. People going, what if indeed this is the start of a domino effect?

And we see money, instead of being sucked out of Asia, we see the opposite. Capital flows coming in because momentum, right? And indeed, we did see that in a way. Literally, a week and a bit after the Taiwan dollar explosion, the South Korean won actually jumped 2%, another super sedate currency, typically. And the whole narrative just gained a lot more traction that, hey,

We are at that point where... This is 1997 in reverse, 2025 style. In 1997, the Asian financial crisis began with the devaluation of Thailand's currency and quickly spread through the region. There was an over-reliance on short-term borrowings at the time by countries like Thailand and South Korea and all that. But the short-term borrowings were not backed by dollar assets. And that, in turn...

really triggered a debt crisis?

There were very hard lessons learned of we need to ensure that we have a treasure chest of really strong, high quality, desired assets like treasuries, like the dollar, and make sure we don't get to the 1997 repeat again. So that really led Asian nations to double down on earning dollars from exports to the U.S., building up surpluses that goes back to the treasure chest idea.

Since 1997, the 11 biggest economies in Asia have collectively bought $4.7 trillion of U.S. equities and bonds, which they reinvested right back into America.

In the early 2000s, almost every dollar earned, for instance, by the large Asian exporters to America was reinvested back into its equities and bond markets. And Asian currencies have been, as a result, almost unvalued for decades. That trend peaked in 2004 and started tapering off as China's membership in the WTO reshaped investments in the region.

The 2008 financial crisis and last year's carry trade crisis in Japan also spooked investors into rebalancing their portfolios. Then Trump started his second term. So almost unanimously talking to people across markets, the message is that Donald Trump's trade war, 2.0, is only accelerating the process of de-dollarization, right?

which in a way is jargon for people turning away from the dollar and finding alternatives. That, undisputedly, is the theme across the $7.5 trillion a day currency markets. It is definitely the theme driving this insatiable bid for gold, for instance, and also for just healthy alternatives. I mean, even arguments like Bitcoin are

are coming into the equation. What can people do to find other stores of value other than the US dollar? We're hearing people say that markets are at an inflection point. We're witnessing the birth pains of a new regime. Others are saying this is just the beginning of the great unwind of US dollar hoarding and exceptionalism.

And how are we seeing investors in Asia reacting to this idea of reverse capital flow? And if it is coming back to Asia, where does the capital go? Japan's largest life insurer, for instance, Nippon Life, they are actively looking for alternatives to treasuries.

This is a big change in stance. The tide is turning after a multi-decade trend. That Titanic is turning. And don't forget China. China, which is so critical. Data from Treasury has shown that they've shrunk their Treasuries holding in March.

The question then is, you're right, where does the capital go? It's going to gold. It's going to Europe. It's going to places like the Singapore dollar, Taiwan dollar. We've seen strengths in Asian currency. So the drips and draps are coming home. But it does take time and people are still figuring out where that money will ultimately land. After the break, what a reframing of global financial markets means for Asia's economies.

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Explore solutions at 4imprint.com and get your brand where it needs to be quickly, confidently and without compromise. The recent surge in Taiwan's dollar came as a shock to investors. But the move globally towards Taiwan's currency doesn't exist in a vacuum.

Figures released in late April showed strong economic growth in Taiwan in the first few months of 2025. And market watchers speculated that foreign exchange rates could be part of the ongoing trade negotiations between the U.S. and major trade partners across Asia, including Taiwan. What does a stronger Taiwan dollar mean for people in Taiwan? Who does it benefit? Who does it hurt?

So I think a good way to think about it would be to look at people in Taiwan and also outside Taiwan. It's good for people who are overseas and hold Taiwanese assets, like real estate, shares, given that the value of their local assets have just, can you imagine, just search 6% and you didn't have to do anything at all just because of the currency move. But you know what? If you are an exporter, I mean, it's painful. All of a sudden you've got a 6% hit.

Take Taiwan's TSMC, the world's largest chipmaker, as an example. It estimates that for every 1% appreciation in the Taiwan dollar, its operating margin declines by 0.4%. Taiwan's life insurers, who are huge investors in U.S. treasuries, also took a significant hit. If you're a local life insurer who have overseas assets, predominantly in the U.S.,

and you are unhedged or unprepared for such sudden moves in a currency, it severely impacts the value of your investments in a very, very short space of time. Goldman Sachs, they put pen to paper and they did a calculation that a 10% gain in the dollar, and this would

This could potentially also apply to other players in the market. But a 10% gain in the Taiwan dollar could lead to $18 billion in unrealized currency loss for the insurers. And that would effectively wipe out their capital reserves.

Okay, so that's the impact on the day. But longer term, is a stronger Taiwan dollar, is it good for Taiwan? So a stronger Taiwan dollar is great for local consumers in the sense that your imports become a lot cheaper. All of a sudden, your imported cheese has just gotten a lot cheaper. They have more spending power as well. So if you think about it, you can go overseas, you can get a lot more bang for your buck.

But if you're an exporter and this is entrenched, all of a sudden there is a regime shift and you are facing a stronger Taiwan dollar as your base case, you are going to be in a lot of pain. Taiwan is a major exporter and we all know strong currencies, not great for your P&L.

Outside Taiwan, some of the world's biggest money managers are wary of how the unwinding of the US dollar could affect other Asian countries, especially those that have large trade surpluses with the US. There are indicators out there suggesting that Asian currencies are indeed severely undervalued, which puts this risk really at the forefront of things. On average, for example,

Major Asian currencies, including the yen and yuan, which are seen as two very anchor currencies in this part of the world, are 57% weaker than exchange rates that take into account differences in the cost of living. That's according to our calculations. And that's close to an all-time historic low of 59% it was set in 2024. And this is a controversial question with really only one answer.

What is the currency in Asia that could be a dollar alternative? And why is it so controversial as an alternative? Yes, this is definitely something that is heavily debated across research desks, I'm sure.

So I'm going to quote Nuttix's, you know, there's a fantastic chief Asia Pacific economist over there who said that for this to be structural, you should know where to go. And nobody gives the return that the dollar has been giving. Nobody. So the euro is the second most traded currency in the world. The yen is the third behind the dollar.

But even those combined, it's hard to find a true alternative to the greenback and the Treasuries market, which backs a lot of this, right, in the U.S. equity markets. But people are certainly thinking about it. And their thinking, in many ways, is enough to trigger some really big swings in markets. Now, imagine if that gains traction.

But essentially, is this rewiring, this reframing of the global financial system, a move away from US dollar dominance, a move into emphasis on local currencies in Asia, is this good or bad for Asia? You know, I don't even know whether I have an encapsulating answer for that.

What I think we can conclude is that definitely there will be a recalibration of markets. How it will land and ultimately end up and who the winners and losers are is still to be determined.

Because this is such a seismic shift, people are racing to figure out, for instance, if we have a stronger Singapore dollar, a stronger Hong Kong dollar, a stronger yen, a stronger Indonesian rupiah, how would that ultimately change everything from the psyche of the consumer through to the fabric of society and businesses as we know it today?

So all of a sudden, if you're going to have people really focusing on buying Asia as a whole, it could accelerate everything from tourism through to technology, through to education, through to medicine and rewire not just the market side of things, but whole economies. But I think people are seriously at a point where they're trying to game plan what that could look like.

This is The Big Take Asia from Bloomberg News. I'm Rebecca Chung-Wilkins. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you liked the episode, make sure to subscribe and review The Big Take Asia wherever you listen to podcasts. It helps people find the show. Thanks for listening. See you next time.

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