"Dollar Hegemony System Faces Widespread Changes... Korea and Japan Must Strengthen Financial Safety Nets" [2026 Financial Forum]

Hiroshi Nakaso, Chairman of Daiwa Institute of Research
Keynote Address at the '2026 Asia Financial Forum'
"Dollar Hegemony is Shaken, Yet Remains Intact"
Transition Toward Coexistence with Alternative Settlement Networks and Digital Curren

"The global financial order is facing gradual but far-reaching changes. The US-led free trade and dollar hegemony system is becoming increasingly multipolar and fragmented."

Hiroshi Nakaso, Chairman of Daiwa Institute of Research, delivered a keynote speech on the theme of "Changing Global Financial Order" at the "2026 Asia Financial Forum" hosted by The Asia Business Daily, held on the 21st at the Westin Chosun Hotel in Jung-gu, Seoul.

Hiroshi Nakaso, Chairman of Daiwa Institute of Research and former Deputy Governor of the Bank of Japan, attended the "2026 Asia Financial Forum" hosted by The Asia Business Daily at the Westin Chosun Seoul on the 21st and delivered a keynote speech on "The Changing Global Financial Order." He emphasized, "protectionism under Trump 2.0, energy shocks resulting from the Middle East war, the expansion of China’s yuan payment network, the emergence of stablecoins and central bank digital currencies (CBDCs), and the rise in gold prices all demonstrate that the existing financial order is being shaken," underscoring his point.

However, he added, "The dollar system remains supported by the overwhelming size of the US financial market, its dominance in foreign exchange transactions, the scale of the US Treasury market, and the liquidity network provided by the US Federal Reserve." He noted, "Therefore, rather than a collapse of dollar hegemony in the short term, it is more likely that the dollar-centered system will persist, but alternative payment networks, digital currencies, and regional financial safety nets will coexist alongside it."

Hiroshi Nakaso, Chairman of Daiwa Institute of Research, attended the '2026 Asia Finance Forum' hosted by The Asia Business Daily on the 21st at the Westin Chosun Hotel in Jung-gu, Seoul, and delivered the keynote speech on the theme of 'Changing Global Financial Order'.

Trump 2.0 to Accelerate Changes in the Global Trade Order and Dollar Hegemony

He explained that the security umbrella and the dollar’s status as the key currency—which the United States has provided since the end of World War II—are now under threat. The international order surrounding energy, trade, currency, and financial safety nets is being restructured. Nakaso stated, "The peace dividend the world has enjoyed since the end of the Cold War has been sustained, but as geopolitical tensions have risen, it is gradually disappearing." He analyzed, "This trend has deepened as the United States moves away from the traditional global order it established."

He continued, "From the perspective of the Trump Administration, the two public goods—the security umbrella and the dollar’s role as the key currency—have imposed costs on the US unilaterally." The argument is that the lives of US soldiers and the financial burden on American taxpayers have been the price paid for providing these public goods. Dollar hegemony has also led to a strong dollar, contributing to deindustrialization in the US manufacturing sector and entrenched trade deficits. For this reason, Trump 2.0’s policies emphasize alleviating unfair cost burdens, reviving domestic manufacturing, restoring the working class and local communities, and prioritizing short-term energy security over decarbonization.

Amid these developments, reciprocal tariffs and the global trade order have also changed. Nakaso pointed out, "In the case of Japan and the European Union (EU), if the most-favored-nation (MFN) tariff rate exceeds 15%, reciprocal tariffs are set at 0%. If the MFN tariff rate is below 15%, the reciprocal tariff is calculated by subtracting the MFN rate from 15%." He analyzed, "This shows that the US is moving away from its role as the guardian of free trade and is instead focusing on reciprocity, protectionism, and a return to manufacturing."

The flow of China’s exports has also shifted. Nakaso noted, "China’s exports to the US decreased from 525.2 billion dollars in 2024 to 421 billion dollars in 2025, but exports to ASEAN, Mexico, and Canada grew significantly." He explained, "This suggests that, as US-China tensions and tariff barriers intensify, China’s exports are increasingly being routed through ASEAN, Mexico, and other alternative markets, rather than going directly to the United States."

He especially emphasized that the Middle East war is not only a simple geopolitical risk, but a global financial risk affecting oil prices, inflation, interest rates, and growth rates simultaneously. He warned, "While the financial markets have not yet fully priced in the most severe risk scenarios, persistent energy-price pressures will eventually lead inflation expectations to diverge and could drive inflation rates much higher than anticipated."

Hiroshi Nakaso, Chairman of Daiwa Institute of Research, delivered the keynote speech on the topic of "Changing Global Financial Order" on the 21st at the Westin Chosun Hotel in Jung-gu, Seoul, at the "2026 Asia Finance Forum" hosted by The Asia Business Daily.

Korea and Japan Should Strengthen Regional Financial Safety Nets to Prepare for Dollar Liquidity Crises

While dollar hegemony can be a burden for US manufacturing, it still provides significant benefits to the United States from financial, strategic, and diplomatic perspectives. He stressed, "dollar hegemony is not sustained by US economic power alone, but is the result of a combination of military strength, financial market depth, trust in institutions, and inertia."

He also highlighted that the United States is strategically utilizing the introduction of "dollar stablecoins" as one of its policies to defend the value of the dollar. Stablecoins are digital currencies issued by private sector entities, such as non-bank financial institutions outside the traditional banking system. They are backed by safe assets like US Treasury bonds and use blockchain technology. He said, "The strategic significance of dollar stablecoins lies not only in their technical efficiency, but also in their potential to solidify the dollar’s role at the payment infrastructure level." He added, "Control over this infrastructure could further strengthen America’s economic influence."

He made recommendations for risk management strategies for the Korean economy in light of these circumstances. He identified two key points: first, that Korea faces growing risks of export supply chain restructuring due to US-China tensions and changes in US tariff policy; and second, that Korea's energy structure is highly dependent on the Middle East, making it vulnerable to shocks in oil prices and interest rates. He assessed that it is necessary to further strengthen regional financial safety nets—such as Korea-US and Korea-Japan currency swap agreements—to prepare for potential future dollar liquidity crises.

Finally, Nakaso emphasized, "Korea and Japan need to address labor force constraints amid declining potential growth rates, while also raising productivity in promising industries." He added, "It is important to pursue policy efforts that foster innovative finance and connect finance to productive investment." He also recommended that both countries actively cooperate in the field of transition finance to achieve carbon neutrality in response to climate change.

This content was produced with the assistance of AI translation services.