Managing The Risk Around Dollar Dominance.

The United States Dollar (USD) has, since the 1940s held world dominance in global currency reserve status. Without any competing currencies used in major country to country trade and global transactions, there has been no threat to its position. However, with the deliberate use of alternative currencies like that of the Chinese Yen, the Euro; to name a few, there is perceived threat to the position of the USD.

The conclusion of the first few multi-billion inter-country trade deals in non-USD currencies and the intention to formulate a new global reserve currency, and many countries deliberately looking for alternatives to the greenback, has re-sparked speculation on whether the USD will be retaining the strength and dominance it has held since the 1940s. The insurance industry, globally holds contingency reserves to meet the contractual liabilities should claims arise. The unit of measure and preservation of these values are billions if not trillions of USD. With more contention around the dominance of the dollar and a worldwide measure of value, Maksure Risk Solutions contends that insurance and reinsurance investment managers should start ‘shaking things up’ in their portfolio mixes to brace for emerging alternative currencies. There is a looming risk of holding astronomical USD balances if it becomes a weaker transacting currency globally.

At Maksure, we have identified alternative ways of storing wealth, that is, contingency reserves in the insurance industry, are topical at the moment. We suggest that storage of reserves could prioritize the following alternative forms to hedge against the risk of ‘de-dollarisation’:

  1. Increasing the holding of international equity funds and selecting exchange-traded funds with exposure to all countries to hedge against the influences of a few governments and economies.
  2. Increasing the holding of real estate investment trusts with exposure distributed across the globe as opposed to single geographic locations.
  3. Gold! Gold has a track record of over 5000 years and a constantly appreciating store of value and backs the most dominant global currency.
  4. The emergence of crypto-currencies and how they are evolving in the current financial system is worth investigating.

Despite the emerging pressure the USD is under, 60% of central banks globally still hold their foreign exchange reserves and conduct all major transactions in USD. The insurance industry still has a level of comfort in holding their contingency reserves in USD as it does not currently seem that losing its global sovereign status is imminent.

“However, as a prudent investment manager, controlling billions set aside to meet the cost of claims, closely watching and hedging against de-dollarisation is definitely a smart move that we strongly advise”, says Zanele Mswela Account Executive Risk Financing and Cell Captive Management – Europe, Asia & Africa.

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About Maksure Risk Solutions

Maksure Risk Solutions is an Afro-Global independent specialist insurance and reinsurance broker with business footprint in Africa, Asia, East & Western Europe, South America and the Caribbean. We provide innovative and tailor-made risk solutions in Insurance and Reinsurance as well as Risk Financing and Actuarial Consulting geared towards capital management and strengthening our client’s balance sheet. Maksure is also one of the major players in Captive Management (Establishment & Management) in South Africa, Mauritius, Bermuda and various other jurisdictions. We have access into the Lloyds of London with a deep understanding of African markets. Our global nature ensures that our clients access quality capacity as well as some of the world’s latest thinking and solutions.