Summary of Key Points
This article challenges the traditional notion that certain assets are always safe, by highlighting events such as the 2020 US Treasury liquidity crisis, the freezing of Russia's foreign exchange reserves, and central banks' continuous purchases of gold. The core argument is that true resilience in times of crisis does not depend on whether an asset's price will rise or fall, but on its ability to be used for financing, settlement, liquidation, or other essential purposes under extreme circumstances. The article also discusses the current state of the US dollar system (which remains dominant but with some assets facing increased risk), the role of gold (as a form of institutional insurance rather than a direct substitute for the dollar), and the impact of non-bank financial institutions (NBFI) on financial crises. It concludes that future risk management should involve building a "functional matrix" rather than relying on a single asset.
Why Traditional Risk Management Approaches Fail: "Usability" Is More Important Than "Value"
In the past, US Treasuries and the dollar were considered safe assets. However, two events have proven this notion incorrect:
- 2020 US Treasury Liquidity Crisis: Amid the pandemic, even the safest US Treasuries were sold in large quantities due to panic. This was not because they had lost their value, but because everyone was eager to convert them into cash (a global rush for liquidity).
- Freezing of Russia's Reserves: Although Russia had substantial foreign exchange reserves, they were rendered unusable after being frozen by Western countries.
These incidents show that safety does not lie in stable prices, but in the ability to use assets under extreme conditions—whether they can be quickly liquidated, legally accessed, or used for payments without disruption.
The Dollar Remains Dominant, but Not All Dollar-Backed Assets Are Safe
Despite discussions about "dollarization," the dollar's network effect remains strong. In 2025, 89.2% of foreign exchange transactions involve the dollar. Official reserves also overwhelmingly favor the dollar (56.77%, compared to 20% for the euro and 1.95% for the yuan).
However, the risk associated with some dollar-backed assets has changed:
- Dollar cash and short-term Treasuries (less than one year) are still considered the safest, as they can be easily converted into cash.
- Long-term Treasuries (10-30 years) are at increased risk due to the projected increase in the US deficit (6.7% of GDP by 2036), which will affect their supply and yield.
- "Dollarization" is more about reducing reliance on the dollar in certain areas rather than completely replacing it. For example, some countries use local currencies for bilateral trade, but the yuan's global usage (2.88%) is still insufficient to replace the dollar.
Central Banks' Gold Purchases: A Backup, Not a Replacement for the Dollar
Central banks have been buying gold in recent years, with net purchases reaching 863 tons in 2025 and continuing to rise in the first quarter of 2026. This is not a attempt to replace the dollar, but rather to obtain a safe backup. The core value of gold is its lack of issuer risk; since it is not issued by any government, it is recognized globally and can serve as a backup in times when dollar assets are unavailable.
Non-Bank Financial Institutions (NBFI) as a New Variable in Crises
NBFI, including funds, hedge funds, and insurance companies, have grown significantly, holding assets worth $256.8 trillion in 2024 (half of the global total). Their impact on crises differs from that of banks:
- 2020 US Treasury Crisis: Open-end funds were redeemed by investors, forcing them to sell Treasuries. Additionally, overseas institutions selling Treasuries exacerbated the liquidity crisis due to the inability of traders to absorb the demand.
- UK LDI Crisis: Pension funds that used leverage to buy long-term UK bonds were forced to sell them when interest rates rose, leading to a sharp drop in bond prices.
These examples show that not all NBFI institutions sell the same assets during crises; their impact depends on factors such as their liability structures and leverage levels.
Future Risk Management: Building a "Functional Matrix" Rather Than Relying on a Single Asset
Traditional risk management focuses on selecting the safest assets, but in the future, it will involve creating combinations that address different types of risks:
- For immediate cash needs: Dollar cash and short-term Treasuries.
- To protect against asset volatility: High-quality sovereign bonds (with appropriate maturity).
- To avoid sanctions/freeze-ups: Gold (which has no issuer risk).
- To ensure uninterrupted payments: Multiple currency accounts and access to different banking systems (e.g., using both SWIFT and CIPS).
- To mitigate legal risks: Choosing secure storage locations and compliant trading partners.
Of course, these strategies come with costs (e.g., lower returns on short-term assets, no interest on gold, and additional fees for multi-currency transactions). However, these costs are necessary for ensuring resilience in extreme situations.
In Summary: Future risk management should not rely on a single asset but rather on a variety of strategies to cope with different risks. In times of crisis, the ability to use assets effectively is far more crucial than their value.