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Dollar Deposed Financial Catastrophe Stress Test

The rise and fall of dominant currencies, associated with trade and linked to financial and political systems, is a recurrent theme in financial history. “Global” currencies have existed as long as there has been cross-cultural trade, exemplified by the commercial empires of historical Rome, Byzantium, Italy. This report describes a de-Americanization of the global financial system as one of the Cambridge Centre of Risk Studies’ four Financial Catastrophe scenarios. 


The rise and reign of the US dollar, signposted by the end of the Second World War, is the most recent and most complete example of how monetary hegemony functions as a stabilising force in the global economy. The scenario imagines a global financial shift from the US dollar to the Chinese renminbi resulting from continued, rapid and massive development of China on a track towards becoming the world’s largest domestic economy. 

The Dollar Deposed Scenario is analogous to the post-World War II replacement of the British Pound Sterling by the US dollar as dominant currency in that it is underpinned by economic weakness, large debt and significant geopolitical shifts that are external to the reserve currency nation. 

The overall impact of the changeover in monetary hegemony does not lead to a worldwide recession in any of the scenario variants. 

Key findings

  • The US expectedly takes the largest plunge in GDP output losses, while the other major economies record gains or negligible impacts to their GDP, signalling that growth in the Chinese economy is ultimately beneficial globally.
  • These impacts are considered insignificant when compared to the Great Financial Crisis whose GDP@Risk is around $20 trillion in 2015 dollars. 
  • The worst performing equity are the US stocks (W5000) while the best performing equities are the UK (FTSE 100).
  • The worst performing fixed income bond is the US while German bonds perform the best. 
  • For portfolio protection it is recommended that equity and fixed income allocation is shifted away from US towards UK and Germany.