Despite the de-dollarisation debate, demand for dollar liquidity in Asia is growing

GEOPOLITICS, changes in global trading relationships, volatility, reserve diversification, and alternative payment systems have all contributed to a view that we are heading towards a world that is less reliant on the US dollar.

Yet, when I speak to our clients across Asia, the reality on the ground is somewhat different.

For many institutions in the region, from insurers to exporters of consumer goods, the question is not whether they need dollar liquidity – it is how effectively they can manage it in a global financial system that remains US-centric.

Asian investors continue to allocate capital to global markets, while maintaining significant exposure to US assets. With US equities accounting for roughly two-thirds of the MSCI World Index, it stands to reason that Asian institutional investors continue to hold large allocations to US assets.

Meanwhile, much of the investment driving the global artificial intelligence buildout continues to be concentrated in the United States. Asian investors seeking exposure to that growth story inevitably maintain significant links to US capital markets, and, by extension, the US dollar.

Moreover, investing is not the only side of the story. Asian exporters, insurers and corporates are also deeply connected to global trade and dollar-denominated markets.

Oil and other key commodities continue mainly to be priced and traded internationally in dollars, while many cross-border financing and settlement activities still rely heavily on dollar liquidity.

None of this is to dismiss the de-dollarisation debate that’s ongoing, but the day-to-day reality for many institutions is far more immediate. They need reliable access to high-quality dollar liquidity, and that need is not waning.

For too long, cash was treated broadly as an operational necessity, requiring somewhere safe to sit. This is understandable in the context of a low-rate environment, where the focus is inevitably going to be on capital preservation, access and operational convenience.

However, after a decade shaped by the Covid-19 pandemic, various fiscal and energy shocks, and a sharp, sustained rise in interest rates, things have changed.

Asian institutions are taking a more strategic approach to cash and dollar liquidity than they did during the low-rate era.

As consistently higher interest rates have become the norm, the opportunity cost of poor liquidity management has increased significantly.

Cash can now generate meaningful returns, while still providing flexibility, resilience, and immediate access to capital when market conditions change.

This is particularly reassuring in a market environment that is increasingly defined by its seemingly normalised volatility.

This is driving an increased focus on sophisticated liquidity management options.

Alongside a toolkit that includes established options such as bank deposits and direct holdings of short-dated securities, investors in Asia are taking a serious look at money market funds, as they seek to strike the ideal balance between liquidity, capital preservation, and yield.

Holdings of European-domiciled money market funds – primarily US dollar-denominated vehicles in Ireland and Luxembourg favoured by Asian institutional investors – rose 7 per cent year-to-date to hover near record highs of US$1.7 trillion in August 2026, according to Crane Data.

This is a trend that is consistent with what we are hearing from institutions across the region.

Asian investors and corporates are increasingly recognising that dollar liquidity itself is an asset that can, and should, be actively managed like other asset classes, rather than simply held. Money market funds offer operational flexibility and active management, helping yields track prevailing market rates.

People tend to be drawn to the big themes, and de-dollarisation represents one of the biggest challenges to the status quo in the global financial system’s history.

However, for those managing US dollar liquidity in Asia, the focus is very much on how to secure access to high-quality liquidity today, rather than the existential future of the dollar in global trade and as the dominant reserve currency.

That is why, despite the de-dollarisation debate, demand for high-quality dollar liquidity in Asia is growing.

The writer is head of global markets at L&G – Asset Management