The withdrawal of US dollar hegemony is a necessary part of the transformation of the US financial system: How should investors cope with the "post-dollar era"?

As the global financial landscape changes, the US dollar hegemony is facing a structural decline. Independent market analyst Lyn Alden points out that due to the United States' long-term structural trade deficit and the increasingly contradictory status of the US dollar as a global reserve currency, this will not only trigger a monetary power transfer but will also reshape the new order of global economy, politics, and geopolitical strategy in the "post-dollar era". Alden mentioned in a recent Newsletter that since the collapse of the Bretton Woods system in 1971, the US dollar gradually replaced gold, becoming the core of the global economy and dominating international trade, financing, reserves, and foreign exchange markets, making it the most liquid currency globally. Specific use cases include: - **International contract pricing**: Many transnational transactions are priced in US dollars. - **Cross-border financing**: Approximately 18 trillion US dollars of non-US debt is denominated in US dollars. - **Reserve assets**: Central banks of various countries hold large amounts of US debt and other US dollar assets as reserves. - **Foreign exchange trading**: Serving as a bridge for global currency exchange, about 90% of foreign exchange transactions involve the US dollar. The global demand for the US dollar supports its high exchange rate but weakens the United States' export competitiveness, leading to an annual trade deficit of 500 billion to 1 trillion US dollars. The long-term reliance on debt and money printing to maintain hegemony has resulted in the "**hollowing out of US industry**" and a "**fragile, high-leverage financial system**". The maintenance of US dollar hegemony depends on a debt-driven financial system, with global US dollar-denominated debt far exceeding the actual circulating base dollars, creating a situation of "20 children fighting for one chair". This high-leverage system requires continuously growing money supply; otherwise, it will face a liquidity crisis. Alden cited the example of the 2020 COVID-19 pandemic, where the US dollar shortage caused by stalled global trade forced the Federal Reserve to stabilize the market through emergency currency swaps and money printing. Alden then pointed out the four main factors causing the loosening of dollar hegemony: - **Irreversible trade deficit**: The United States' decades-long trade deficit is mainly due to excessive consumption rather than productive investment, leading to economic imbalance. - **Rise of domestic political populism**: Wealth shifting from manufacturing and declining industries in the West Coast to the financial center on the East Coast has led Midwestern voters to gradually turn to the Republican Party, indicating that dissatisfaction with trade imbalance has become a mainstream political issue. - **Global trend of reserve diversification**: Some countries have recently tended to hold more non-dollar assets to reduce dependence on a single currency. - **Decreasing effectiveness of policy tools**: Trump attempted to reduce the trade deficit through high tariffs but did not address the core issues of dollar hegemony, which not only crushed small and medium-sized enterprises but also raised material costs for industrial reconstruction.

Countries Layout "De-dollarization": The United States Faces a Difficult Dilemma

In recent years, countries have been increasing their holdings of non-dollar assets such as gold, attempting to reduce their dependence on the US dollar system. Data from the Bank for International Settlements (BIS) shows that the US dollar's market share in cross-border transactions is gradually declining, and multilateral monetary agreements like the "Mar-a-Lago Accord" have become a new option.

For the United States, choosing to continue consolidating dollar hegemony requires many costs, including damaged export competitiveness, pressure on the middle and lower-class labor market, exacerbated wealth inequality, and political division. On the other hand, actively weakening the dollar may stimulate manufacturing reconstruction, but the accompanying high inflation and low growth environment may lead to stagflation, posing risks to the future performance of the US financial market:

During the economic transformation process, there may be insufficient job creation, financial asset pressure, and increased geopolitical tensions, and investors should respond cautiously.

How Should Investors Respond to the "Post-Dollar Era"? Diversification and Flexibility are Key

Facing an unstable future, Alden recommends that investors focus on asset allocation and risk management, including:

• Allocate short-term bonds and TIPS to counter interest rate and inflation risks

• Hold neutral reserve assets such as gold and Bit

• Research and try to invest in non-US stock markets, especially emerging market opportunities

• Regularly review and adjust investment portfolios to enhance return potential in volatile market conditions

(Is the US Dollar Entering a Bear Market? Gold and Bit Become Market Favorites)

Global Economic Structure and US Financial Transformation are Already in Progress

Alden finally emphasized: "The exit of dollar hegemony is a necessary part of the global economic power restructuring, and more symbolizes that the US financial system is entering a stage of 'long-term transformation'."

Whether choosing to maintain the status quo or move towards adjustment, the future will be full of challenges and uncertainties. Only by responding flexibly and actively planning can one stand firm in the post-dollar era.