There is an argument that it is not the US dollar that is losing status, but money more generally, and if that’s the case, the alternative to the US dollar is not another currency, but another asset altogether, like crypto or gold. Now we are not saying for one second that US dollar dominance will give way to crypto dominance or that the world economy will go back to the gold standard. But in recognising the arguments for such alternatives, it will help us understand how financial asset prices might develop; especially bonds and currencies.

The first port of call is to ask why there is this argument that the problem is money, not the US dollar. Of course, so-called gold bugs who promote the value of gold have probably said this for as long as gold has been mined. These arguments relate largely to the fact that gold is in limited supply and money is not. Central bank actions such as sub-zero policy rates and quantitative easing have only served to increase their fervour.

However, it is notable that gold prices (and crypto for that matter) have only really taken off in the past 18 months, or so. Before that they were far more subdued, and that despite the sub-zero policy rates and quantitative easing of the post global financial crisis years.

In short, it might not be the case that alleged monetary largesse by the likes of the Fed, ECB, BoJ and more is sufficient on its own to make these assets fly and really question the value of money.

Steven Barrow, Head of Standard Bank G10 Strategy, said the clincher could be that monetary largesse has been accompanied by fiscal irresponsibility; something that has taken a bigger turn for the worse in the US with the recent big, beautiful bill. The rapid and concerning buildup in government debt is primarily a legacy of crisis-management, such as Covid in 2020 or the energy shock of 2022.

The BIS recently showed that debt within the non-bank private sector was broadly equal to public debt across advanced countries just before the global financial crisis, but now public debt is at least one-and-a-half times the size of private debt, which represents a huge rise in the former. Central banks have long been criticised by the likes of former BIS head William White for cutting rates aggressively in crisis situations but never lifted them sufficiently when recovery occurred. It could be argued that governments are doing the same, particularly the Trump Administration, which has eschewed budget consolidation for tax cuts, and all at a cost of an extra USD3.4bn in debt over the coming decade according to the non-partisan CBO.

Importantly, it is not just the US. In the UK, for instance, the government is struggling to bring debt down and one cost of this is that long bond yields are around the highest levels that we have seen since the late 1990s. Other countries too are seeing significantly elevated long-dated yields, such as Japan where 30-year yields are now double 10-year yields having been practically equivalent just before Covid. The more governments have to pay for longer-term debt issuance and the more they struggle to issue the bonds, the greater the temptation to shift issuance to the front end of the curve.

For instance, President Trump has bemoaned the fact that there is a high financing cost from issuing longer-dated bonds. But if shift to shorter-dated debt happens in the US and possibly elsewhere, it increases what we call the ‘moneyness’ of debt because issuing more bills and less bonds generates more liquidity (as bills necessitate a smaller haircut in repo transactions). Such changes increase the risk of so-called fiscal dominance and that can undermine the independence of the central bank. In short it might be this fiscal dominance that is the key to why other assets than ‘money’ like crypto and gold have risen so much recently.

“Looking ahead, if this continues, it would seem to imply that they will continue to gain more value, not just against the US dollar but against currencies in general. Other implications in our view are higher inflation and steeper yield curves”, said Steven Barrow.