On the Safe-haven Status of the US Dollar

Panel Participation

On the Safe-haven Status of the US Dollar

Andrew Hauser

*

Deputy Governor

2026 US Monetary Policy Forum

7 March 2026

(

6 March 2026, 1.30 pm EST

)

–

New York

The phrase ‘safe haven’ – or safe

harbour

in Old Norse – conjures up

images of a peaceful idyll, far from the wilds of the open seas, furnishing comfort and replenishment for

the weary sailor. But the reality can be rather different – as Captain Cook found when, heading

home at the end of his famous voyage in 1770, he grounded his ship

HMS Endeavour

on the

Great Barrier Reef (Slide 2). ¹

In mortal danger, the crew found a promising river

estuary – known as Waalumbaal Birri by the local Guugu Yimidhirr people – in which to conduct

repairs. But the winds were so fierce, and the water so crocodile-infested, that it took them another

week to stagger far enough inland to beach their leaking boat on a mudbank. ²

Defining a safe haven asset can be equally challenging.

Market participants typically identify three main characteristics of such assets (Slide 3): security

(minimal credit risk); an inverse correlation with the value of risky assets; and liquidity. Those

characteristics are said to flow, in turn, from a raft of more fundamental drivers including: economic

stability; strong institutions; open markets for goods, services and capital; and deep financial

markets. ³

The relative weight placed on these considerations varies across time, and by investor mandate. But if

anything could have been said to meet these tests in recent decades, it is surely the US dollar.

Whether that status may now be under threat is a topic of lively discussion, in Australia and beyond. But

what does the evidence show?

Let’s start with security – something all investors need (Graph 1). The cost of insuring

against a US default

did

pick up either side of ‘Liberation Day’ in April 2025,

and again to a lesser degree around the government shutdown. Moody’s also cut their US credit rating

from AAA in May 2025. But this only brought them into line with other rating agencies ⁴

– and

sovereign CDS spreads, though an imperfect proxy, have since fallen back to their longer term average. So

there is little sign yet of a

persistent

decline in perceived security.

Graph 1

The dollar’s hedging properties matter most to return-seeking investors. The US dollar has

obviously not played what some claim to be its ‘usual’ role in key periods over the past

12–18

months – depreciating, rather than appreciating, in the face

of widespread uncertainty over US policy, and a sharp fall in equity prices last April.

But in truth, the dollar has

never

been a perfect hedge for all risk-off events, appreciating

most persistently during periods of funding stress associated with strong demand for the currency (Graph

2 and Table 1). ⁵

As such,

fund managers have long understood that the

optimal

currency hedge for US equity holdings

switches frequently between dollar, yen, Swiss franc and other currencies, depending on the shock (Graph

3). ⁶

So while the

events of 2025

could

be a sign that things have changed, what we saw was far from unique. It

is surely noteworthy that the dollar

did

appreciate following the recent attacks on Iran.

Graph 2

Table 1: US dollar safe-haven correlations

Event

USD as a safe-haven hedge

Great Financial Crisis (2008-2009)

Yes

European sovereign debt crisis (2011)

Yes

COVID-19 (March 2020)

Yes

Russia-Ukraine war (2022)

Yes

Iraq war (2003)

No

September 11 attacks (2001)

No

April 2025 tariff announcements

No

Graph 3

The feature that matters most for many, including us central bank reserves managers, is liquidity. The

pre-eminent role of the US dollar in cross-border payments and invoicing, banking claims and debt

issuance ⁷

has

long allowed US sovereign assets to command a liquidity premium (or ‘convenience yield’). On

some measures, that ‘specialness’ deteriorated in 2025 compared with earlier years, leading

some commentators to make the eye-catching claim that it may presage the end of the dollar as a reserve

currency. ⁸

Here too it is worth keeping our feet on the ground. The convenience yield is a slippery concept to

measure – but neither of the proxies shown on Graph 4 suggest anything particularly dramatic

happened last year relative to the longer term trends, which had been suggesting a declining

‘specialness’ for some years. Nonetheless, as a matter of sheer scale, US fx and treasuries

remain

by far

the most liquid of the ‘traditional’ safe haven markets (Graph 5).

The covid experience caused some to pose questions about the capacity of the US treasury market to trade

efficiently through periods of extreme stress. ⁹

But the market weathered recent turbulence well,

bolstered by confidence in the growing array of liquidity tools available from the Federal Reserve,

including the Standing Repo Facility, the Discount Window, the Foreign and International Monetary

Authorities (FIMA) repo facility and the standing swap lines.

Graph 4

Graph 5

Having summarised how the dollar’s safe haven characteristics have (or haven’t) changed,

let’s look now at how market participants have responded.

In aggregate, official reserves

have

diversified away from the US dollar, principally

towards gold and ‘non-traditional’ currencies, according to International Monetary Fund (IMF)

data (Graph 6). ¹⁰

And reserve managers told last year’s OMFIF

survey that that diversification could go further in the near term (Table 2), reporting geopolitics to

be their top long-term investment challenge. ¹¹

Graph 6

Table 2: OMFIF survey: reserve managers' plan for currency exposure

*

% of respondents

Increase

Maintain

Decrease

EUR ²³

+6 ⁷⁰

−3 ⁷

−3

RMB ²⁰

+7 ⁷³

−2 ⁷

−5

JPY ¹¹

+8 ⁸⁸

−2 ²

−5

AUD ⁹

+6 ⁸⁹

−6 ^{2 0}

CAD ⁷

+7 ⁹¹

−9 ²

+2

GBP ¹³

+8 ⁷⁹

−9 ⁸

+1

USD ²⁰

−9 ⁶⁴

+4 ¹⁶

+5

CHF ⁴

+4 ⁹⁵

−3 ^{2 0}

* Over the next 12–24 months; brackets indicate change from last survey.

Source: Sanghani, N, A Sharan, A Correa and Y Aziz (2025), Global Public Investors Survey, OMFIF.

But once again these are pretty glacial moves (Slide 11). The dollar remains close to half of all

reserves, similar to, or even a little higher, than in the early 1990s. Reserves managers still identify

it as by far the safest and most liquid of the major currencies, according to the OMFIF survey. And there

are a whole range of drivers behind the aggregate decline that do not reflect investment-based decisions

to diversify out of dollars, including: growth in reserves pools that are structurally biased towards

other currencies; decisions by some countries to shift part of their reserves pools to sovereign wealth

funds, state or policy banks; a forced response to sanctions; and valuation effects. ¹²

An unknown

amount of non-US dollar currency holdings may also be swapped back to dollars.

Indeed, despite all the press stories and commentary about foreigners withdrawing capital from the United

States and seeking alternative homes elsewhere (including Australia), the data show that they remain

large buyers of US assets in net terms (Graph 7). Meanwhile, capital flows into Australia have so far

remained broadly similar to those seen in earlier years. (Graph 8)

Graph 7

Graph 8

There has been one important change, however. Predominantly all the pick-up in portfolio capital inflows

into the United States over the past year reflects purchases of equity rather than debt (Graph 9).

And the huge valuation gains in US equity prices relative to debt in recent years have

dramatically changed the composition of US external liabilities, expressed as a share of nominal GDP

(Graph 10).

Graph 9

Graph 10

This shift towards equity has at least two important implications.

First, it means foreign investors, particularly in the private sector, may be keener to protect

themselves against signs of possible breakdown in what (rightly or wrongly) they see as the

dollar’s historical risk-off properties. It is hard to know how far this has so far gone,

because comprehensive data are not available. But some countries’ pension funds, including in

Denmark – the country of my fellow panellist – have reported increasing their hedge

ratios in 2025. Even Australian superannuation funds (which have historically relied heavily on the

Australian dollar’s inherent risk-

on

properties) have increased their cover very

slightly (Graph 11), with some funds saying they are likely to go further. ¹³

In as

well-reported analytical piece, Deutsche Bank identified a parallel pivot from unhedged to hedged ETF

inflows in 2025. ¹⁴

Ironically, of course, the very act of increasing

hedges may have played some part in driving the dollar down at times last year. ¹⁵

Graph 11

Second, the shift to equity suggests at least the possibility that we might be moving on from the

world of ‘exorbitant privilege’, in which the United States was able to run a persistent

current account deficit without running up a particularly large negative Net International Investment

Position (NIIP). The valuation differentials that enabled this – short low-yielding domestic

debt, long high-yielding overseas equities ¹⁶

– have more recently run into reverse,

contributing to a significant fall in the US NIIP (Graph 12). ¹⁷

Whether NIIP is a robust

indicator of a currency’s safe haven status is of course a hotly debated topic. ¹⁸

But the

role of the dollar and the future path of this variable seem likely to remain intimately linked.

Graph 12

Before closing, I want to leave you with two reflections from the United Kingdom, my country of birth.

The first is that even a temporary collapse in confidence in a safe haven asset, if significant in size,

can leave lasting scars. In October 2022, the Bank of England was able to staunch a run on gilts caused

by weaknesses in the business models of the Liability-Driven Investment (LDI) sector through a temporary

and targeted liquidity intervention. But the cost of this crisis was a borrowing cost premium that

arguably persists to this day (Graph 13).

Graph 13

The second is more of a reflection on time. For a century, or thereabouts, the pound sterling was the

dominant global currency (Graph 14). ¹⁹

It is often thought that the dollar took over

decisively following the Second World War, as an impoverished United Kingdom passed the mantle to a

resurgent United States at Bretton Woods. But as Barry Eichengreen has reminded us, the truth is messier:

the dollar first overtook sterling as the leading reserve currency in the mid-1920s, but it lost that

status again following the devaluation of 1933. For much of the inter-war period, the two vied for

supremacy – and gold too played a key, if not always helpful, role. ²⁰

The lesson of this period, if

there is one, is that change may come, not with a bang, but by degree, and with switchbacks along the

way. None of the developments I have covered today – the temporary fluctuations in default

probability, the shifts in correlations, the decline in the convenience yield, the shift in official

reserves, or the patchy pick-up in hedging – are anything like as dramatic as some of the headlines

would imply. But whether, like Captain Cook’s quest for safe harbour, they lead us ultimately back

to safety, or leave us stuck on the Barrier Reef, remains to be seen.

Graph 14

With that, I look forward to our discussions today.

Endnotes

*

I am deeply grateful

to George Tyler for his expert assistance in preparing these remarks, the slides and the analysis

that underpins them. I also thank Susan Black, Jason Griffin, Jacob Harris, Jarkko Jaaskela,

David Jacobs, Brad Jones, Jeremy Lawson, Jahan Mand, Tom van Florenstein Mulder and Morgan

Spearritt for their comments and suggestions on an earlier draft. ¹

References are to the

accompanying

slide pack

. ²

See, for instance,

‘Captain Cook’s Epic Voyage: The Strange Quest for a Missing Continent’ by

Geoffrey Blainey. The image of HMS Endeavour on Slide 2 is from National Museum of

Australia, ‘A view of the Endeavour River on the coast of New Holland, by Ignaz Sebastian

Klauber, 1795’, Australia’s Defining Moments Digital Classroom. ³

Although these

foundations may seem somewhat obvious, researchers have struggled to find reliable empirical

evidence to support them. One of the few that does appears to be a country’s net overseas

asset position, a point I return to at the end of these remarks. ⁴

S&P cut from AAA

in 2011, and Fitch in 2023. ⁵

Adolfsen JF, AM

Grønlund and T Harr (2026), ‘The US Dollar: Not a Traditional Safe Haven’, CEPR,

29 January ⁶

I am grateful to

Stuart Simmons, head of Multi-Asset Solutions at Australia’s QIC, for the idea behind this

‘quilt’. ⁷

See Bertaut C, B von

Beschwitz and S Curcuru (2025), ‘The International Role of the U.S. Dollar – 2025

Edition’, FEDS Notes, 18 July. ⁸

See, for instance,

Jiang Z, A Krishnamurthy, H Lustig and RJ Richmond (2026), ‘Dollar Erosion: Understanding

the Loss of Reserve Currency Status’, 12 January; Atkeson A, J Heathcote and F Perri

(2025), ‘The End of Privilege: A Reexamination of the Net Foreign Asset Position of the

United States’,

American Economic Review

, 115(7), pp

2151–2206

; Acharya VV and Laarits T (2025), ‘Tariff War

Shock and the Convenience Yield of US Treasuries – A Hedging Perspective’, December;

Du W, R Keerati and J Schreger (2025), ‘Decoupling Dollar and Treasury Privilege’,

October. ⁹

See, for instance,

Group of Thirty (2021), ‘U.S. Treasury Markets: Steps Toward Increased Resilience’,

Working Group on Treasury Market Liquidity; Duffie D (2025), ‘How US Treasuries Can Remain

the World’s Safe Haven’,

Journal of Economic Perspectives

, 39(2), pp

195–214

; Liang N and H Zhu (2026), ‘Clearing the Path for

Treasury Market Resilience’, Brookings, 17 February; Kashyap AK, JC Stein, JL Wallen

and J Younger (2025), ‘Treasury Market Dysfunction and the Role of the Central Bank’,

Brookings Papers on Economic Activity, BPEA Conference Draft,

27–28

March. ¹⁰

IMF Data (2026),

‘Currency Composition of Official Foreign Exchange Reserves (COFER)’. ¹¹

Sanghani N (2025),

‘Central Banks Turn to Gold over the Dollar’, OMFIF, 24 June. ¹²

For a fuller

discussion of these trends, see Goldberg LS and O Hannaoui (2026), ‘Drivers of Dollar Share

in Foreign Exchange Reserves’, NBER Working Paper 34888; Arslanalp S, B Eichengreen and C

Simpson-Bell (2024), ‘Dollar Dominance in the International Reserve System: An Update’,

IMF Blog, 11 June; Arslanalp S, B Eichengreen, and C Simpson-Bell (2022), ‘The Stealth

Erosion of Dollar Dominance: Active Diversifiers and the Rise of Nontraditional Reserve

Currencies’, IMF, WP/

22/58

, March; Douglass P, LS Goldberg and

OZ Hannaoui (2024), ‘Taking Stock: Dollar Assets, Gold, and Official Foreign Exchange

Reserves’, Liberty Street Economics, 29 May; European Central Bank (2025), ‘The

International Role of the Euro’; Bertaut

et al

, n 7; Setser BW (2023),

‘China Isn’t Shifting Away From the Dollar or Dollar Bonds’, Council on Foreign

Relations, 3 October. ¹³

Murdoch S (2026),

‘Major Australian Pension Fund Trimming US Dollar Exposure on Weakening Outlook’,

Reuters, 20 January. For more on this topic, see Hauser A (2025), ‘

A Hedge Between Keeps Friendship Green: Could

Global Fragmentation Change the Way Australian Investors Think About Currency

Risk?

’, Remarks for a function hosted by CLS Bank International and NAB, Sydney,

16 September. ¹⁴

Smith I and E

Herbert, (2025), ‘Foreign Investors in US Assets Rush for Protection Against Swings in

Dollar’,

Financial Times

, 16 September. ¹⁵

Shin HS, P

Wooldridge and D Xia (2025), ‘US dollar’s Slide in April 2025: The Role of FX

Hedging’, BIS

Bulletin

, No 105. ¹⁶

Famously described

in Gourinchas P-O and H Rey (2014), ‘External Adjustment, Global Imbalances, Valuation

Effects’, in Gopinath G, E Helpman and K Rogoff (eds),

Handbook of International

Economics

, vol 4, North Holland, pp

585–645

. ¹⁷

See Atkeson

et al

, n 8 for a description of this shift. I am grateful to Lachlan Dynan

(Deutsche Bank) for the idea for the chart on Slide 15. ¹⁸

One paper arguing

in favour is Habib MM and L Stracca (2011), ‘Getting Beyond Carry Trade: What Makes a Safe

Haven Currency?’, ECB Working Paper Series No 1288. ¹⁹

See Vicquéry R

(2022), ‘The Rise and Fall of Global Currencies over Two Centuries’, Banque de France

Working Paper Series No 882. ²⁰

For a detailed

discussion of this period, see Eichengreen B and M Flandreau (2008), ‘The Rise and Fall of

the Dollar, or When did the Dollar Replace Sterling as the Leading Reserve Currency?’.

Underlying data

This file contains all

underlying data

that are available for public release.

Some graphs in this speech were generated using Mathematica.