Nagel: doubts about safe-haven status of US dollar have risen

Nagel: doubts about safe-haven status of US dollar have risen

Doubts About the US Dollar’s Safe-Haven Status Rise Amid Shifting Dynamics

Recent analyses suggest growing skepticism about the US dollar’s traditional role as a safe-haven currency, with evidence indicating its behavior diverges from established benchmarks like the Japanese yen and Swiss franc. A 2025 study by CEPR researchers highlights that the dollar typically appreciates only temporarily during "risk-off" events, while persistently weakening against the yen and Swiss franc in such periods. This contrasts with classic safe-haven currencies, which tend to strengthen and retain value during market uncertainty. The dollar's resilience emerges primarily during episodes of global funding stress—such as liquidity crunches that drive up demand for dollars—rather than during broader risk-averse sentiment according to CEPR analysis.

ING's 2026 report corroborates this shift, noting the dollar has lost some of its safe-haven appeal since 2024, as measured by its correlation with US stocks and Treasuries. The firm attributes this to erratic US trade policies, including tariff threats under President Trump, and concerns about Federal Reserve independence. However, ING emphasizes that the dollar's foundational role in global finance remains intact, with no significant acceleration in "de-dollarisation" trends observed in asset holdings or transaction volumes.

The CEPR analysis further identifies structural factors undermining the dollar's safe-haven status. The US's negative net foreign asset position and the shifting composition of foreign-held US assets—toward equities and away from Treasuries— reduce their effectiveness as hedges during crises. Additionally, the dollar's relatively high yields compared to G10 peers make it less attractive as a funding currency for carry trades, a key feature of traditional safe-haven assets.

Despite these challenges, the dollar retains its dominance in global payments and funding markets, partly due to its deep liquidity and regulatory frameworks. However, Oxford's Dennis Snower warns that erosion of confidence in the dollar's underpinnings—such as macroeconomic stability, central bank independence, and geopolitical trust— could trigger a destabilizing realignment in global finance. Such a shift, he argues, risks fragmenting the international monetary system and amplifying systemic vulnerabilities.

While the dollar's safe-haven status has not collapsed, its evolving dynamics reflect broader uncertainties about its long-term role in a multipolar financial landscape. Investors and policymakers must monitor these trends as they could reshape global capital flows and risk management strategies.