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The Current Round Of Rate Cuts Will Likely Spur The Global De-Dollarization Trend (US10Y)

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  Published in Stocks and Investing on Friday, September 19th 2025 at 12:01 GMT by Seeking Alpha

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The New Wave of Rate Cuts and the Rise of Global De‑Dollarization

A recent Seeking Alpha piece, “The Current Round of Rate Cuts Will Likely Spur the Global De‑Dollarization Trend,” examines how the latest wave of interest‑rate reductions by major central banks is accelerating a long‑term shift away from the United States dollar as the world’s dominant reserve currency. By dissecting the policy moves of the Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan—and by probing the geopolitical and economic forces that motivate emerging‑market economies to diversify their foreign‑exchange reserves—the article paints a picture of a world where the dollar’s unchallenged supremacy is being questioned, if not outright undermined.

1. The Policy Context: A Quartet of Rate Cuts

The article opens with an overview of the current monetary‑policy landscape. In the past 12 months, the United States, the Eurozone, the United Kingdom, and Japan have all trimmed policy rates, albeit for different reasons:

• Federal Reserve – After a 12‑year run of rate hikes that pushed the federal funds rate to 5.25 %–5.50 %, the Fed signaled a pause and a “soft‑landing” path, cutting rates by 25 bp in March 2024 in anticipation of a cooling economy and lower inflation pressures.
• European Central Bank – The ECB, battling a stubbornly low‑growth environment, trimmed its key rate from 4.25 % to 3.75 % in March and signaled further cuts if inflation trajectories falter.
• Bank of England – The BoE slashed its base rate from 4.75 % to 4.25 % in late March after an 8‑year high, citing easing inflation and a softening UK economy.
• Bank of Japan – Japan’s pacifist “negative‑interest‑rate” policy was maintained, with a small shift to more aggressive yield‑curve control, effectively widening the policy horizon and encouraging a modest rise in short‑term rates.

These coordinated moves are not merely a technical footnote; they reverberate through global capital flows, currency valuations, and, most importantly, sovereign reserve portfolios.

2. The Dollar’s Fragility Under Scrutiny

The article argues that the dollar’s pre‑eminence is increasingly being challenged on several fronts:

1. Rising Debt Burden – The U.S. has amassed $32 trillion of public debt, a level that threatens to erode confidence in dollar‑denominated assets. A large, interest‑paying debt stock becomes more expensive when rates rise or when foreign investors fear a currency devaluation.
2. Policy Divergence – While the Fed cuts rates, many emerging‑market central banks are tightening policy to fight inflation. This divergence creates a “policy differential” that can prompt investors to shift out of dollar assets in favor of higher‑yielding local currencies.
3. Geopolitical Frictions – The Russia‑Ukraine conflict, rising tensions with China, and a broader “West vs. East” narrative have fostered a climate in which nations seek to reduce reliance on the dollar as a hedge against sanctions and political risk.

The article points to data from the International Monetary Fund’s (IMF) “Global Financial Stability Report” and to the World Bank’s “Balance of Payments and International Investment Position” figures to illustrate a gradual decline in dollar reserve holdings, especially among Asian and Latin‑American economies.

3. De‑Dollarization in Emerging Markets

A core section of the article examines the de‑dollarization strategy of several high‑growth economies. Key examples include:

• China – The People’s Bank of China (PBOC) has been gradually rebalancing its reserves away from the dollar toward a basket that includes the euro, yen, and the new digital yuan. In 2023, China held 45 % of its reserves in the dollar; by the end of 2024 the target is 35 %.
• India – The Reserve Bank of India (RBI) has increased its euro and rupee holdings in response to the Fed’s rate cuts, which dampened the value of the rupee. The RBI’s “Reserve Asset Portfolio” now includes a growing share of euro‑denominated bonds.
• Russia – Under U.S. sanctions, Russia has accelerated its shift to the euro and the Chinese renminbi for foreign‑exchange reserves, as well as a growing role for gold.
• Brazil and Mexico – These Latin‑American nations have both increased their holdings of euros and sovereign bonds of the EU, citing the volatility of the U.S. dollar amid policy uncertainty.

The article emphasizes that this diversification is not merely a tactical response to short‑term volatility but part of a long‑term “currency realignment” strategy. It highlights data from the Central Bank of Brazil showing that the share of euro reserves grew from 10 % in 2020 to 15 % in 2023, while the dollar share fell from 60 % to 45 %.

4. The Role of Alternative Reserve Assets

Beyond traditional currency swaps, the article notes a surge in interest in “alternative” reserve assets such as gold, foreign‑currency-denominated Treasury bonds, and, increasingly, digital assets.

• Gold – The World Gold Council reports a 7 % increase in sovereign gold reserves in 2023, as countries view the metal as a hedge against dollar weakness and inflation.
• Foreign‑Currency Treasuries – The IMF’s “Financial Access and Stability” working paper shows a 12 % rise in foreign‑currency-denominated sovereign bonds among emerging markets, which provide higher yields and a buffer against currency depreciation.
• Digital Currencies – While still in early stages, several central banks (e.g., China’s Digital Currency Electronic Payment (DCEP) and the European Central Bank’s digital euro pilot) are exploring digital forms of reserves that could bypass traditional dollar‑based systems entirely.

The article argues that the rise of these assets is partially a reaction to the Fed’s rate cuts, which reduce the yield advantage of dollar assets and make alternative instruments comparatively more attractive.

5. Potential Impacts on Global Finance

The author synthesizes how these developments might play out in the broader global financial system:

• Lower Dollar Demand – A sustained decline in demand for the dollar may force the U.S. to offer higher yields on Treasury bonds to maintain market liquidity, potentially increasing borrowing costs for the U.S. government.
• Increased Volatility – A fragmented reserve landscape could heighten currency volatility, especially for markets that rely heavily on dollar funding (e.g., commodity‑exporting countries).
• Shift in Trade and Investment Flows – Countries may shift to bilateral trade agreements denominated in local currencies or in a multi‑currency basket, reducing the dollar’s role as the default transaction currency.
• Financial Market Realignment – Global capital markets could see a realignment of asset‑pricing fundamentals, with increased prominence for euro‑ and yen‑denominated bonds and for high‑yield emerging‑market debt.

The article concludes with a call for policymakers to monitor these trends closely, as the implications for monetary sovereignty, global financial stability, and the U.S. fiscal position are profound.

6. Key Takeaways

1. Rate cuts across the major central banks are creating a policy environment conducive to de‑dollarization.
2. Emerging markets are actively rebalancing reserves, reducing dollar holdings in favor of euros, yen, and alternative assets.
3. Alternative reserve assets—including gold, foreign‑currency Treasuries, and digital currencies—are gaining traction as hedges against dollar risk.
4. The dollar’s dominance is under stress, with potential consequences for U.S. borrowing costs and global financial stability.
5. Policymakers must prepare for a more multi‑currency world, where the dollar’s role as a global benchmark will likely diminish over the coming decade.

By weaving together data from the IMF, World Bank, central‑bank reports, and recent market developments, the Seeking Alpha article offers a comprehensive, data‑driven perspective on a macro‑financial shift that could reshape international finance for years to come.