By Lina Irawan 
Over the past decade, the United States has embarked on a profound reconsideration of its role in the international order, a shift that carries significant implications for the global financial system and the undisputed reign of the U.S. dollar. A series of assertive, often unilateral, actions—ranging from the imposition of tariffs on both adversaries and allies, to a recalibration of its engagement in conflicts in the Middle East, and most notably, the weaponization of international payment systems like SWIFT—have injected unprecedented levels of tension and uncertainty into global economic relations. These moves have not only strained ties with traditional allies but have also prompted nations heavily reliant on the U.S. dollar for trade and as a reserve currency to re-evaluate their financial vulnerabilities.
Historically, the U.S. dollar’s dominance has been underpinned by several pillars: the sheer size and liquidity of the U.S. financial markets, the credibility of the Federal Reserve as an independent central bank, the robust rule of law within the American legal system, and the perception of the U.S. as a stable geopolitical actor. The "exorbitant privilege," as coined by Valéry Giscard d’Estaing, allowed the U.S. to finance its deficits more easily and wield unparalleled influence over global finance. However, recent policy decisions have chipped away at these foundational assumptions. The Trump administration’s use of Section 232 and Section 301 tariffs against a broad spectrum of countries, including China, the European Union, Canada, and Mexico, signaled a departure from multilateral trade norms. Furthermore, the extensive application of sanctions, particularly the exclusion of Russian banks from the SWIFT messaging system following the invasion of Ukraine, demonstrated the potent capability of the U.S. to effectively sever access to the global financial arteries for targeted nations. While effective in geopolitical pressure, such actions inevitably raise questions among other countries about their own potential exposure to similar financial isolation should their political interests diverge from Washington’s.
This shifting landscape compels a critical question: If the U.S. dollar’s international standing were to significantly diminish, whose currency or currencies stand most to benefit? The most frequently cited contender, of course, is China, whose economic might and geopolitical ambitions position the Renminbi (RMB) as a potential challenger. Beijing has actively pursued the internationalization of its currency through initiatives like the Belt and Road Initiative, the development of its Cross-Border Interbank Payment System (CIPS) as an alternative to SWIFT, bilateral currency swap agreements, and the pioneering rollout of a digital yuan (e-CNY). However, the RMB faces significant structural hurdles to becoming a true reserve currency rival. China’s pervasive capital controls, the lack of full convertibility, its state-dominated financial system, and persistent concerns regarding the rule of law and political interference limit its appeal to institutional investors who prioritize transparency, liquidity, and unimpeded access. These limitations mean that while the RMB’s role in global trade finance may grow, it is unlikely to fully replicate the USD’s unique role as a safe, liquid, and freely accessible global reserve asset in the near term.
Beyond the obvious ascendant world power that is China, our contention is that a more nuanced and perhaps counterintuitive beneficiary emerges: small, well-governed countries with open capital markets and strong institutional rule of law. These nations stand to gain significantly on the currency front as the U.S. continues to harm its world reserve currency status and potentially withdraws further from aspects of the international stage. This thesis is supported by three primary reasons, each addressing a fundamental shift in global investor priorities.
First, a growing demand for a currency that is backed by truly independent institutions and non-weaponized financial infrastructure is becoming increasingly apparent. If the U.S. is perceived as no longer reliably supplying a currency that is backed by a strong, independent Federal Reserve (especially amidst concerns over fiscal policy and debt loads), a predictable rule of law on the international stage, and financial rail networks that will not be weaponized for political ends, investors will naturally seek alternatives that demonstrably offer these features. Smaller countries, by their very nature, often embody these characteristics. They typically boast highly independent central banks, insulated from direct political meddling, focused purely on monetary stability and inflation targeting. Their legal systems are generally robust, transparent, and predictable, upholding strong property rights and contract enforcement—qualities essential for investor confidence. Crucially, these nations tend to have open capital markets with free-floating exchange rates, ensuring price discovery and ease of entry/exit for capital. Furthermore, many have developed sophisticated currency derivative markets, providing the necessary tools for hedging and risk management that large institutional investors require. These attributes collectively allow them to offer the same fundamental features that the U.S. dollar has provided over the past 100 years, but potentially without the associated geopolitical baggage. Consider countries like Australia, Canada, Switzerland, Singapore, and New Zealand, all of which exhibit these qualities. Their central banks are highly credible, their legal systems are respected, and their markets are deep relative to their economic size.
Second, technological changes in the form of stablecoins and Central Bank Digital Currencies (CBDCs) will make it even easier for international investors to bundle and diversify their small-country currency exposure, often with near-instant settlement. Traditionally, large institutional investors have been hesitant to embrace smaller currencies due to legitimate concerns over a lack of network effects (i.e., fewer others using it in trade) and liquidity issues in times of stress. The foreign exchange market, while vast, can be challenging for less frequently traded pairs. However, the advent of blockchain-related products fundamentally alters this dynamic. Stablecoins, which are cryptocurrencies pegged to the value of a fiat currency or a basket of currencies, offer a digital representation of these smaller currencies, facilitating faster and cheaper cross-border transactions. CBDCs, direct liabilities of central banks, promise even greater efficiency and security in international payments, bypassing traditional correspondent banking networks. Projects like the Bank for International Settlements’ (BIS) Project Dunbar and mBridge are actively exploring multi-CBDC platforms for international settlements, demonstrating the potential for seamless, real-time transfers across different national digital currencies. With the extension of these blockchain-related products, end-users will be able to group various small currencies together into diversified baskets and transfer them instantaneously, which significantly mitigates traditional liquidity or settlement concerns in international trade. This innovation lowers the barrier to entry for smaller currencies, making them more palatable for large-scale institutional adoption and diversification strategies.
Third, and perhaps most importantly in a geopolitically charged world, a small-country currency’s greatest perceived weakness—its lack of institutional power—is actually its greatest strength from the perspective of an international currency holder or seller. Because a small nation typically does not possess the institutional power, the global reach, or the geopolitical leverage to unilaterally kick users off their financial rail networks (as the U.S. has demonstrated with aggressors like Russia and the SWIFT system), the end-user of a small nation’s currency does not have to worry about the political weaponization of the currency they are using. It is highly unlikely that when using a small nation’s currency (or a basket of small currencies), an international investor will have to worry about a coordinated attempt by that nation to deny them access to monetary rail networks for international grievances. This inherent neutrality becomes an incredibly attractive feature in an era where major powers are increasingly using financial tools as instruments of foreign policy. For nations and corporations seeking to de-risk from geopolitical entanglements and ensure uninterrupted access to global finance, a neutral, non-weaponizable currency offers a crucial layer of security and predictability. This lack of coercive power transforms into a powerful promise of non-interference, building trust in a fragmented world.
Current macroeconomic trends further underscore these points. Debt loads around the Western world, particularly in the United States and parts of Europe, are reaching near all-time highs, exacerbated by pandemic spending and ongoing fiscal pressures. Concurrently, the yield on 10-year government bonds has seen significant increases, reflecting market concerns about inflation, fiscal sustainability, and the long-term solvency of these economies. International investors are clearly worried about the fiscal standing of the United States and Western Europe, prompting a search for stable alternatives. Yet, the underlying demand for a well-governed currency remains exceptionally high – investors continue to demand an open currency, with deep and liquid markets, free-floating exchange rates, and, critically, backed by a strong, predictable rule of law.
We are already seeing this demand-side story play out, albeit at an early stage. Data from the International Monetary Fund’s (IMF) Currency Composition of Official Foreign Exchange Reserves (COFER) statistics indicates that the fraction of foreign reserves held in the Australian dollar (AUD) and Canadian dollar (CAD) has increased substantially over the past 10 years. While still a small overall fraction of total world transactions and reserves compared to the USD, Euro, or Yen, their upward trajectory is notable. For instance, the AUD’s share in global reserves has climbed from less than 1% in 2010 to over 2% recently, with similar trends for the CAD. These currencies, often referred to as "commodity currencies," also benefit from their respective nations’ strong resource endowments and stable political environments. Furthermore, the fraction of international cross-border trade conducted in these currencies, while modest, has also seen incremental gains, signaling a growing comfort among traders and financial institutions.
To be clear, we are not advocating a position that the U.S. dollar will imminently lose its standing as the primary world reserve currency. Its deep liquidity, established network effects, and entrenched role in global trade and finance ensure its dominance for the foreseeable future. Rather, we are highlighting that a persistent and growing demand-side story exists for small, well-governed countries to gain a significant foothold in the evolving international currency battle. If the U.S. is going to continue to make moves that fragment the international order and undermine trust in the neutrality of its financial system, currencies from smaller nations with strong institutions, open markets, and, crucially, no credible threat of weaponizing their currencies, stand to benefit most in this new world of international trade and finance. They offer a compelling blend of stability, neutrality, and accessibility that is becoming increasingly valuable in a geopolitically uncertain global economy.
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