US dollar safe-haven status shows resilience amid shifts
RBA Deputy Governor Andrew Hauser discussed the resilience and evolving nature of the US dollar's safe-haven status at the 2026 US Monetary Policy Forum. He examined evidence for shifts in its security, hedging properties, and liquidity.
Security and hedging properties endure
The US dollar's safe-haven status is traditionally defined by security, inverse correlation with risky assets, and liquidity, supported by economic stability and strong institutions.
Despite recent debates, evidence suggests its resilience.
The cost of insuring against a US default briefly rose around April 2025, coinciding with a Moody's downgrade from AAA.
Yet, sovereign CDS spreads have since returned to their long-term average, indicating no persistent decline in perceived security.
For return-seeking investors, the dollar's hedging properties are crucial.
While the dollar did not always appreciate during 2025's uncertainties, it has never been a perfect hedge for all risk-off events, appreciating most consistently during funding stress.
Fund managers often diversify currency hedges, using the dollar, yen, or Swiss franc depending on the shock.
Its appreciation after recent attacks on Iran further illustrates its continued, complex role.
Liquidity and reserve diversification
Liquidity is critical for central bank reserves managers, with the US dollar's dominance in cross-border payments and debt issuance providing a 'convenience yield'.
Despite claims of deterioration in 2025, proxies show no dramatic shift against longer-term trends, and US FX and treasuries remain the most liquid traditional safe haven markets, supported by Federal Reserve liquidity tools.
Official reserves have diversified away from the US dollar, towards gold and 'non-traditional' currencies, driven by geopolitics.
Yet, these are glacial shifts, with the dollar still comprising nearly half of all reserves.
Diversification is also influenced by structural biases, sovereign wealth fund shifts, sanctions, and valuation effects.
Foreign investors remain large net buyers of US assets, increasingly favoring equities.
Resilience in a shifting landscape
The US dollar's safe-haven status shows resilience, despite ongoing, gradual shifts rather than a dramatic collapse.
While some diversification and hedging changes are occurring, the dollar's core strengths in security and liquidity persist.
Any future erosion of its global role will be a slow, multi-decade process, reflecting historical currency transitions, not a sudden event.