Capital Flows Haven’t Changed: How USD Will Reign Supreme in a Fragmenting Financial World
Chris Penfold
Nov 30 2025
For more than a decade, predictions of the US dollar’s decline have circulated with growing confidence. Each new geopolitical shock, sanctions regime, or currency experiment seems to prompt fresh declarations of “de-dollarisation”.
Yet the evidence tells a different story. What we’re witnessing today is not a retreat from the dollar. In fact, far from it. Instead we’re seeing a renewed and accelerating phase of “re-dollarisation”!
At the centre of this dynamic sits the United States, whose financial markets remain the deepest and most liquid in the world. Global capital continues to migrate towards US assets during periods of uncertainty, reinforcing the dollar’s dominance rather than weakening it.
This pattern is often described through the “Dollar Milkshake Theory”: the global financial system resembles a milkshake, and the US still holds the strongest straw!
How a Strong Dollar Feeds on Itself
When capital flows into dollar assets, the currency strengthens. A stronger dollar, in turn, increases the repayment burden for governments, corporations and financial institutions that have borrowed in dollars.
To service those liabilities, borrowers must acquire even more dollars, pushing demand higher again. The result is a self-reinforcing feedback loop that tightens global financial conditions well beyond US borders.
For businesses operating across jurisdictions, this cycle rarely shows up first in headline exchange rates. It tends to emerge quietly through rising funding costs, tighter credit availability, or sudden stress in counterparties’ balance sheets.
One practical discipline in this environment is to map where dollar exposure actually sits within supply chains, financing structures and customer bases, rather than relying on surface level currency assumptions.
The Second Straw: Stablecoins and Digital Dollars
A powerful new accelerator has now joined this cycle: US Dollar stablecoins.
Instruments such as USDT and USDC allow users across the world to gain dollar exposure instantly, often outside the traditional banking system.
In effect, they operate as a “second straw” feeding capital into the dollar ecosystem.
Stablecoins are attractive because they are fast, accessible and frequently discreet. For businesses and individuals in highly regulated or capital restricted jurisdictions, they provide an alternative pathway into the US financial system.
The unintended consequence is accelerated capital flight from Emerging Markets and from regions where authorities seek tight control over domestic deposits and cross-border flows.
From a commercial perspective, this rise in digital dollar infrastructure introduces both operational efficiencies and new counterparty risks. Treasury policies, settlement practices and working capital management are being reshaped by tools that did not exist at scale even five years ago. Firms that treat this purely as a technology trend risk missing its deeper monetary implications.
Monetary Sovereignty Under Pressure
Nowhere is this tension more evident than in China. Stablecoins offer exporters, manufacturers and investors routes to move capital beyond state controls. This weakens the effectiveness of domestic monetary policy and undermines longer term geopolitical strategy.
At the same time, Chinese authorities are loosening monetary conditions to manage internal debt pressures while quietly increasing their gold holdings to underpin confidence in the Yuan.
Meanwhile, Europe faces similar concerns around deposit leakage, regulatory bypass and declining influence over cross-border capital movements. Across both regions, policymakers confront the same structural challenge…
Financial innovation is moving faster than traditional frameworks for currency control!
For corporate decision makers, this shifting terrain makes jurisdictional risk harder to assess using legacy models. Currency exposure, capital mobility and regulatory certainty can change rapidly, with little warning.
Embedding periodic scenario analysis into financial planning is no longer a luxury; it is becoming a basic requirement of prudent governance.
When Asset Markets Carry the Adjustment
Historically, real exchange rate adjustments occurred through changes in nominal currencies or domestic price levels. Increasingly, those adjustments are now being expressed through asset markets instead. Equity valuations, property prices and alternative assets are absorbing pressures that once would have been visible in consumer inflation or trade balances.
China’s real exchange rate, for example, is now deteriorating in a way that echoes Japan’s trajectory following its 1980s asset bubble. The picture points not to short-term cyclical weakness but to deeper structural challenges compounded by a porous capital account.
Repeated attempts by central banks to manipulate nominal exchange rates (whether through aggressive easing or tightening) have a long record of inflating bubbles or triggering crises.
Eventually, asset markets bear the cost of adjustment.
For organisations and decision makers alike, this underlines the importance of watching liquidity conditions as closely as earnings reports.
Balance sheet resilience today depends as much on access to funding and collateral quality as it does on operational performance.
Two Monetary Blocs Take Shape
The international monetary system is steadily crystallising into two rival spheres. On one side stands a Chinese aligned alliance underpinned by physical gold reserves and the implicit promise of “trust our gold”…
On the other sits a US centred faction supported by digital infrastructure, regulatory backing and the expanding role of stablecoins. A “trust our technology” proposition…
Washington’s policy direction reinforces this trajectory. Legislative initiatives such as the GENIUS Act are designed to bring stablecoins further into the regulated financial system, embedding them more deeply within global commerce.
This strengthens the US’s structural advantage by aligning technological innovation with monetary power.
Looking ahead, the next phase of competition is unlikely to be fought through tariffs alone. Financial market pressure, cyber capabilities and even quantum technologies may become instruments in future financial wars – where confidence and liquidity are prized as highly as physical resources.
3 Critical Navigation Considerations For Organisations (Without Picking Sides)
For those managing organisational resources, the key lesson is not to frame these shifts as a binary choice. The emerging system is fragmenting, not replacing itself.
Exposure to digital assets such as Bitcoin sits alongside enduring demand for tangible stores of value like gold. Each responds to different facets of monetary stress.
In practical terms, here’s 3 critical considerations organisations may evaluate when assessing macro-level dynamics:
- Global Liquidity – Diversification today is less about geography and more about liquidity regimes. So watch liquidity as closely as earnings reports.
- Asset Characteristics – Understanding how assets behave as funding conditions tighten or ease is becoming as important as traditional measures of risk and return.
- Diversify Credit Channels – For operating businesses, the same principle applies to funding strategies. Which means reliance on a single credit channel or jurisdiction increasingly represents a hidden vulnerability.
A Quiet Shift with Lasting Consequences
Re-dollarisation is not unfolding through a dramatic collapse of rival currencies…
It’s advancing quietly through capital flows, digital infrastructure and the relentless logic of debt servicing.
Stablecoins have introduced a new transmission mechanism that bypasses many of the controls on which past monetary arrangements relied.
For organisations navigating this landscape, the advantage will lie with those that treat monetary conditions as a living system rather than a background variable.
Regular liquidity monitoring, disciplined stress testing and an adaptive approach to funding are fast becoming core elements of strategic resilience.
In a world where capital can move faster than regulation, insight and preparation may prove to be the most valuable currencies of all.
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