The dollar is becoming riskier in the global competition for capital
AI summary card
The dollar is becoming riskier in the global competition for capital
Deutsche Bank believes foreign capital is shifting from US Treasuries toward US equities and dollar-based financial infrastructure, which may make the dollar more dependent on technology and risk appetite rather than a stable safe-haven asset.
- The share of US Treasuries held by foreign investors has fallen from a peak of more than 50% to approximately 30%, while foreign holdings of US equities are at historical highs.
- In the year through March 2026, US net equity inflows exceeded USD600bn, a record level, and their advantage over government and institutional bond inflows was the largest on record.
- Stablecoins, on-chain settlement, and tokenized assets could broaden access to dollar payments and US capital markets, but may also strengthen the dollar's sensitivity to the cycle of risk assets.
Report interpretation
Overview
This is a Deutsche Bank foreign exchange strategy commentary on the changing role of the dollar in the global competition for capital. The report notes that although the Federal Reserve Dollar Index has barely changed over the past year and foreign exchange volatility is at multi-year lows, the capital flow structure beneath the surface calm is changing: overseas interest in US sovereign debt is weakening, while overseas interest in US equities is rising. The author believes geopolitical support for demand for US debt is weakening, while technology, AI, financial infrastructure innovation, and the on-chain dollar ecosystem are attracting more private capital into US assets.
Core views
The core view is that the dollar's financing structure may shift from foreign official savings purchasing long-term US debt in the past toward private and retail investors purchasing US equities in the future. In the short term, this may appear to be a smooth substitution of funding sources, but it would make the dollar more procyclical, more dependent on AI and the US equity wealth effect, and more likely to weaken in tandem with markets during downturns.
Analysis framework
The report applies a macro capital-flow and institutional-change framework, comparing foreign inflow trends into US Treasuries and US equities while incorporating geopolitics, fiscal conditions, corporate earnings, AI investment returns, the facilitation of cross-border retail investment, stablecoins, and tokenized assets into a unified capital-flow analysis.
Methodology notes
From Debt Financing to Equity Financing
The report divides foreign demand for US assets into demand for US Treasuries and demand for US equities, arguing that the former is being weakened by geopolitical factors and the reduced provision of public goods, while the latter is being driven by technology, AI, and financial infrastructure innovation.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- US DollarCore Subject of Discussion
- Strengths
- The depth of US capital markets, technological leadership, the dollar payment network, and the stablecoin ecosystem remain attractive.
- Weaknesses
- Demand from foreign official and long-term debt capital is weakening, and the dollar may become more dependent on procyclical equity capital.
- Comparison
- Compared with the past, when safe-haven demand for US Treasuries supported the dollar, the dollar may in the future be supported more by US equities and digital financial infrastructure.
- Risks
- During market pullbacks, the dollar may no longer appreciate steadily and could instead be dragged down by equity and AI risk appetite.
- US TreasuriesTraditional Source of Dollar Demand
- Strengths
- Historically, they have provided countercyclical demand and safe-haven characteristics.
- Weaknesses
- The foreign-held share has fallen from a peak of more than 50% to approximately 30%, and overseas demand is weakening.
- Comparison
- Compared with US equities, US Treasuries have become less attractive to new overseas capital.
- Risks
- Weaker US fiscal conditions and allies' desire for strategic autonomy may continue to depress overseas demand.
- US EquitiesEmerging Source of Dollar Capital Inflows
- Strengths
- Stronger US corporate earnings, AI themes, and easier cross-border retail investment are attracting substantial capital.
- Weaknesses
- The sources of capital are more procyclical and may exit rapidly if risk appetite reverses.
- Comparison
- In the year through March 2026, net inflows into US equities exceeded inflows into government and institutional bonds, with the gap at its widest on record.
- Risks
- If AI returns fall short of expectations or US equities correct, the dollar may also come under pressure.
- RMBLong-Term Currency Competition Variable
- Strengths
- China is promoting easier access to offshore RMB borrowing, strengthening the conditions for RMB internationalization.
- Weaknesses
- Internationalization still faces constraints including market depth, convertibility, and global acceptance.
- Comparison
- The dollar is expanding its reach through stablecoins and US financial infrastructure, while the RMB is advancing internationalization through cross-border financing channels.
- Risks
- The contest between capital flows in the dollar and RMB could become a long-term competition for monetary dominance.
Key data
- Share of US Treasuries Held by Foreign InvestorsApproximately 30%The report states that this share has fallen from a peak of more than 50% to approximately 30% currently.
- US Net Equity InflowsMore than USD600bnIn the year through March 2026, the US received more than USD600bn in net equity inflows, a historical record.
- DTCC Assets Under CustodyMore than USD100tnThe report mentions that DTCC began tokenizing more than USD100tn in real-world assets under its custody that month.
Impact & implications
If the report's assessment proves correct, the dollar's asset characteristics will change: rather than providing portfolio diversification during declines in risk assets as it did in the past, it may increasingly resemble a procyclical asset tied to US equities, AI themes, and global retail risk appetite. For investors, dollar risk management will need to monitor US fiscal credibility, US corporate earnings, returns on AI capital expenditure, cross-border retail capital flows, stablecoin regulation, and progress in RMB internationalization.
Risks
- The dollar may lose its diversification function in risk portfolios.
- Global capital may flow back from US assets to domestic markets due to changes in domestic investment policies in countries such as Japan.
- RMB internationalization and easier offshore RMB financing may weaken the dollar's marginal dominance.
- The dollar's increasing dependence on AI, US equities, and retail risk appetite may amplify exchange-rate risks during market declines.
What to watch
- Whether the share of US Treasuries held by foreign investors continues to decline.
- Whether net inflows into US equities remain strong, particularly cross-border inflows from Asian retail investors.
- Whether Japan's pension-asset allocation and retail tax incentives change.
- Progress in stablecoin regulation, on-chain settlement, tokenized assets, and DTCC-related infrastructure.
- The pace of progress in China's offshore RMB borrowing and RMB internationalization policies.