AI, industrial relocation and the thinning supply of dollars: Towards a new monetary geography

AI is not just transforming production; it is quietly reshaping the geography of global liquidity.

When globalization carried the dollar

Since the end of Bretton Woods, the US dollar has entrenched itself as the backbone of global trade and finance. Its dominance is not merely symbolic; it is embedded in central‑bank balance sheets and in the daily plumbing of international markets.

A few figures illustrate the scale:

• 58–60% of global foreign‑exchange reserves are held in dollars, down from more than 70% in the early 2000s.
• The dollar is involved in 90% of all FX transactions.
• Roughly 50% of world trade is invoiced in USD, including between third countries.
• More than 60% of international debt is issued in dollars.

This architecture rests on a well‑established mechanism: the United States exports dollars through its persistent current‑account deficits, around 3–4% of GDP in recent years, and reabsorbs them through its financial markets, the deepest and most liquid in the world. This is the “exorbitant privilege” described by Valéry Giscard d’Estaing: a structural asymmetry that allows Washington to finance itself at exceptionally low cost.

But this mechanism presupposes a world of long, fragmented supply chains and a global economy irrigated by US imports. In other words: a globalized world.

 

AI reshuffles the deck: Automation shortens supply chains

The rise of artificial intelligence and industrial robotics is now altering the production calculus. As technological capital replaces low-skilled labor, the wage advantage of emerging economies erodes. Proximity to end‑markets, political stability, and supply‑chain security become the decisive factors.

Relocation, or its diplomatic cousin, friend‑shoring, is no longer a political slogan but an economically rational choice.

The United States accounts for 13% of global goods imports. Even a partial contraction of this demand would have systemic consequences:

• fewer imports mean fewer dollars exported to Asia and emerging markets;
• fewer exported dollars mean fewer USD reserves accumulated by peripheral central banks;
• fewer reserves mean less automatic recycling into US Treasuries.

This mechanical slowdown comes even as the United States continues to attract nearly 40% of global equity capital flows and maintains a sovereign bond market exceeding $25 trillion.

The paradox is clear: America’s financial power remains intact, yet the commercial diffusion of the dollar could weaken if supply chains shorten.

 

Emerging Markets confront a scarcer dollar

For developing economies, the dollar is not merely a currency; it is a strategic resource. It pays for energy imports, refinances external debt, and stabilizes local exchange rates. Episodes of monetary stress, in 2013, 2020, and 2022, have shown how existential this dependence can become.

If USD trade flows contract structurally, emerging economies will need to adjust. Several avenues are already being explored:

• expanding bilateral settlements in local currencies;
• diversifying reserves into gold or the renminbi;
• strengthening regional monetary cooperation, notably within the BRICS framework.

But no alternative currently combines the depth of US markets, full convertibility and the legal security of Treasuries. The issue is therefore not a sudden reversal, but a gradual erosion of the dollar’s universality.

 

Key questions for markets Will the US current‑account deficit narrow? A sustained contraction would reduce the structural supply of dollars to the rest of the world. Will Treasuries remain the ultimate safe asset? Despite federal debt exceeding 120% of GDP, demand remains robust in periods of stress. Will automation accelerate commercial fragmentation? A world organized into regional blocs mechanically reduces the need for a universal currency. Can emerging markets truly de‑dollarize? Their dependence on USD financing severely limits short-term room for maneuver.

Conclusion: A hegemony reconfigured

Artificial intelligence does not herald the decline of the dollar. It merely redraws the contours of its influence. As automation makes industrial relocation economically viable, the trade flows that once sustained the dollar system begin to contract. But this contraction does not imply a loss of status; it signals a shift towards a more selective, less diffuse, and arguably more resilient form of dominance.

While the BRICS gain visibility, they do not gain infrastructure. Their monetary initiatives fragment the commercial landscape but do not threaten the global financial architecture, a domain in which the United States retains an institutional lead no rival can yet match. In a more regionalized world, multiple currencies may coexist for local trade. Only one remains indispensable when liquidity tightens, confidence falters, or capital seeks refuge.

The dollar may become less ubiquitous in day-to-day transactions, yet more central in decisive moments. Less universal, but more unavoidable. This is not the end of a hegemony; it is its adaptation to a world where the scarcity of global liquidity paradoxically reinforces the value of the only currency capable of absorbing shocks.