As talk of dollar’s doom heats up, BofA pushes back, says global demand is surging

Investing.com -- President Donald Trump’s tariff blitz may have rattled the dollar’s safe-haven image, but talk of the greenback’s demise—or de-dollarization—is overblown, BofA strategists said, as the trade-weighted dollar remains near historic highs, with global demand for dollars only growing.

“From a longer-term perspective, the trade-weighted dollar is near its historical highs (Chart of the Day), and even DXY is unchanged since the 1970s. We think recent spot FX price moves miss the dollar forest for the dollar trees,” BofA wrote, pushing back against the de-dollarization narrative.

While the dollar has weakened since January, BofA argues that exchange rates alone don’t capture the full story. The world appears, however, to be “rapidly dollarizing, not de-dollarizing,” with the growth of dollar liabilities—across government, banks, nonbank financial intermediaries (NBFIs), and corporates—pointing to “almost insatiable demand for dollars”

The strategists highlight that US public debt has surged from $9 trillion in 2007 to $36 trillion today, yet Treasuries remain highly liquid and in demand, trading at yields comparable to or below other major sovereigns when FX-hedged. Bank deposits have also ballooned, and the shadow banking sector’s assets have more than doubled since 2009, reflecting the strength of global dollar demand1.

BofA also notes that new technology, such as stablecoins, could accelerate global dollarization by making US government liabilities more accessible worldwide. Meanwhile, the idea of de-dollarization is described as “difficult to achieve,” requiring either fiscal surpluses or widespread private deleveraging—both unlikely in the near term.

While policy shocks and volatility may drive short-term swings, BofA cautions investors “not to miss the dollar story for the dollar trees,” as the expansion of US balance sheets continues to be enabled by robust global demand for dollars.