Shifting Sands in Global Finance: An Analysis of Asia-Pacific’s Increasing Reliance on Euro-Denominated Borrowing and its Implications for U.S. Financial Dominance
Abstract: The global financial landscape is characterized by dynamic shifts, constantly influenced by geopolitical tensions, economic policies, and market dynamics. This paper investigates the nascent, yet significant, trend of Asia-Pacific (APAC) borrowers increasingly favoring euro-denominated debt issuance over U.S. dollar-denominated financing. Drawing upon recent market data and expert commentary from a December 2025 Bloomberg report, we analyze the drivers behind this shift, including strategic diversification, responses to U.S. trade policies, shaken investor confidence in the dollar, and favorable funding costs. While the U.S. dollar retains its majority share in global debt markets, the marked increase in euro issuance by Asian entities, coupled with a declining dollar market share, suggests a potential erosion of America’s long-standing financial pre-eminence. This development points towards a more multipolar global financial system and underscores the intricate interplay between economic policy, geopolitical strategy, and capital flows.
Keywords: Euro-denominated borrowing, U.S. financial dominance, Asia-Pacific, de-dollarization, capital markets, trade policy, currency diversification, global finance.
- Introduction
The U.S. dollar has long been the undisputed hegemon of the global financial system, serving as the primary reserve currency, the favored denomination for international trade, and the dominant currency for sovereign and corporate debt issuance outside of domestic markets. This supremacy has afforded the United States significant economic and geopolitical advantages, including lower borrowing costs and outsized influence over global financial flows. However, recent developments suggest a potential shift in this established order, particularly within the dynamic Asia-Pacific (APAC) region.
A December 2025 report highlights a growing trend where APAC borrowers are increasingly turning to euro-denominated debt, raising questions about the enduring strength of the U.S.’s financial edge. This paper aims to meticulously examine this emerging phenomenon, exploring the key drivers propelling Asian entities towards euro financing and assessing the broader implications for the U.S. dollar’s global standing. While predictions of the dollar’s demise have historically proved premature, the confluence of strategic, economic, and political factors underlying the current shift warrants careful academic scrutiny, as it may signal a more fundamental evolution towards a multipolar global financial architecture.
- Background: The U.S. Dollar’s Enduring but Contested Hegemony
For decades, the U.S. dollar’s role as the world’s primary reserve currency and the dominant medium for international transactions has been a cornerstone of global finance. Data from the Bank for International Settlements (BIS) indicates that as of June, the greenback accounted for 63% of bonds issued by borrowers outside their home currency, a significant increase from 43% at the end of 2007. In contrast, the euro’s share had concurrently dropped from 32% to 25% over the same period, suggesting a strengthening, rather than weakening, of dollar dominance in the preceding years.
Despite this long-term trend, the notion of “de-dollarization” has periodically surfaced, often in response to geopolitical tensions or U.S. policy shifts. Critics and “naysayers” have frequently forecasted the dollar’s decline, only for it to consistently reassert its pre-eminence. However, the current shift observed in Asia-Pacific borrowing patterns appears to be driven by a distinct set of circumstances, moving beyond routine refinancing and reflecting a more strategic reorientation. Understanding this historical context is crucial for evaluating whether the present trend represents a mere “blip” or a potential harbinger of a long-term structural change in global capital markets.
- The Shift in Asian Borrowing Patterns: Empirical Evidence
The Bloomberg report presents compelling evidence of a notable pivot in Asia-Pacific’s financing strategies. In 2025, euro-denominated issuance by APAC borrowers reached a record 23% of the total across both currencies, marking a substantial six percentage-point increase from 2024. This surge translated into a 75% rise in euro note sales by companies and governments, totaling €86.4 billion ($100.7 billion) for the year.
While U.S. dollar deals continue to constitute the majority of financing activities and greenback borrowing by Asian issuers also saw a 29% increase in absolute terms, the critical observation is the decline in the dollar’s market share relative to the euro. This suggests a strategic reallocation of capital raising efforts rather than simply an overall expansion of borrowing. The demand for euro-denominated assets has been robust, with multiple Asian deals being described as “most oversubscribed” in Europe’s publicly syndicated debt market during their launch week. High-profile examples include China’s €4 billion bond sale, which garnered bids exceeding €100 billion, and Japanese telecom giant NTT Inc.’s €5.5 billion offering, recognized as Asia’s largest corporate euro issuance in 2025. This demonstrable market appetite further underscores the growing appeal and capacity of the European debt market for Asian issuers.
- Drivers of Euro-Denominated Issuance by Asian Borrowers
The increasing attractiveness of the euro to Asian market participants is multifaceted, stemming from a combination of geopolitical motivations, economic incentives, and strategic portfolio considerations.
4.1. Geopolitical and Policy-Induced Diversification
A primary driver cited by market experts is the explicit “need to diversify away from US dollar concentration.” Daniel Kim, co-head of debt capital markets for Asia Pacific at HSBC, emphasizes that the surge in euro issuance is rooted in “confluence of strategic motives that go beyond the routine refinancing.” This sentiment is echoed by Ben Wang, head of offshore China debt capital markets at Deutsche Bank AG, who notes a clear “De-dollarization or diversification of investment portfolios to have more deployment in non-dollar currencies is a theme we have witnessed this year.” Deutsche Bank’s APAC bond trading volume, initially negligible for euros, grew to “more than 10%, even 20%” in the second half of the year, illustrating this shift in demand.
Crucially, U.S. President Donald Trump’s policies in 2025 are implicated as a catalyst. His trade moves, particularly the imposition of tariffs, compelled Asian economies to diversify their trading relationships. Concurrently, his public pressure on the Federal Reserve to cut interest rates, despite existing inflation concerns, “shaken investors’ confidence in the dollar’s pre-eminence.” This erosion of confidence, coupled with the dollar’s 11% slide against the euro during the year, made euro assets more appealing for both investors and borrowers seeking to hedge against perceived U.S. policy risk and currency volatility. Martin Schulz, chief economist at Fujitsu Ltd. in Japan, characterizes this trend as a “normalization” in a “more multipolar world,” reflecting a broader geopolitical realignment.
4.2. Economic Incentives and Favorable Funding Costs
Beyond strategic diversification, tangible economic benefits are propelling the shift. Asian borrowers are finding that they can “raise money more cheaply in euros than in dollars or their home currencies.” This cost advantage is significant in capital markets, where basis point differentials can translate into substantial savings over the lifetime of a bond.
A key indicator of these favorable conditions is the premium investors pay to swap euros into dollars, which reached a near five-year low of 3.1 basis points, according to Bloomberg data. This reduced swap cost makes euro-denominated borrowing more attractive for issuers who ultimately need to convert funds to dollars or their local currencies, effectively lowering their all-in financing expense.
4.3. Broadening Investor Base and Market Depth
The move to euro markets also serves to broaden the investor base for Asian issuers. Chris Iggo, London-based chief investment officer for core investments at Axa Investment Managers, views this as a “fairly healthy development,” as “It gives you a broader market to invest in, with cash flows from different regions and different types of companies.” Accessing the deep and liquid European debt market allows Asian entities to tap into a wider pool of capital, potentially securing better terms and larger volumes than might be available exclusively in dollar markets or their domestic currencies. This expansion of funding options enhances financial resilience and strategic flexibility for these borrowers.
- Implications for U.S. Financial Dominance
The observed shift in Asian borrowing patterns carries significant implications for the long-term dominance of the U.S. dollar and America’s position in global finance. While the dollar’s majority share remains intact, the erosion of its market share in a critical region like Asia-Pacific is noteworthy.
Firstly, a sustained trend of diversification away from dollar-denominated assets by major borrowers could gradually reduce global demand for U.S. debt and financial instruments. Over time, this could potentially impact the U.S.’s ability to finance its deficits at historically low costs, as the “exorbitant privilege” associated with dollar hegemony might diminish.
Secondly, the increased reliance on euro markets signals a nascent albeit significant challenge to the U.S.’s pre-eminence in capital raising. If European markets continue to offer competitive funding costs and a robust investor base, it could incentivize other regions to follow suit, further fragmenting global capital flows and reducing the dollar’s singular influence. This aligns with the “multipolar world” thesis, wherein economic and financial power is distributed among several major blocs rather than concentrated solely in one.
Finally, the political motivations behind this shift, particularly the response to U.S. trade policies and concerns over Fed independence, highlight how geopolitical actions can directly impact financial flows and currency preferences. This suggests that maintaining financial dominance is not solely an economic endeavor but also contingent on consistent, predictable, and internationally perceived stable policy frameworks.
- Future Outlook and Challenges
Projections suggest that the appeal of Europe as a funding destination will persist. Owen Gallimore, APAC head of credit analysis at Deutsche Bank, forecasts that Asian borrowers’ euro issuance will climb to $125 billion in 2026, representing a more than 20% gain. Henry Loh, head of Asia credit at Aberdeen Investments, anticipates “growing interest in euro issuance to finance this growth” as issuers seek to expand their footprint globally.
However, it is crucial to temper these projections with an acknowledgement of the inherent uncertainties. The report itself notes that it is “unclear whether the latest reversal is a blip or a long-term trend.” The U.S. dollar has demonstrated remarkable resilience throughout history, and a sustained resurgence in investor confidence, coupled with shifts in interest rate differentials or geopolitical stability, could potentially reverse the current trajectory.
Nevertheless, the drivers identified – strategic diversification, cost advantages, and responses to policy uncertainty – are fundamental and suggest that the trend is unlikely to be ephemeral. The increasing sophistication of Asian capital markets and the growing global connectivity further empower issuers to explore diverse funding avenues.
- Conclusion
The increasing preference of Asia-Pacific borrowers for euro-denominated debt issuance marks a notable development in the global financial landscape. Driven by a confluence of strategic imperatives to diversify away from U.S. dollar concentration, economic incentives such as lower funding costs, and reactions to specific U.S. trade and monetary policies, this trend suggests a gradual erosion of America’s long-standing financial pre-eminence.
While the U.S. dollar undeniably maintains its dominant position in global capital markets, the significant increase in euro issuance by Asian entities, coupled with a relative decline in the dollar’s market share in this vital region, cannot be dismissed as a mere transient phenomenon. It reflects a strategic recalibration by sophisticated borrowers in response to evolving geopolitical and economic realities. This shift towards a more multipolar financial system, where the euro plays an increasingly prominent role in a key growth region, challenges the historical assumptions of unquestioned dollar supremacy and underscores the dynamic interplay between national policies, investor confidence, and global capital flows. Further research will be crucial to monitor the longevity and broader geographical spread of this trend, as well as its long-term implications for international monetary relations and the global balance of economic power.
References:
Flynn, F., & Vossos, T. (2025, December 7). US Loses Financing Edge as Asia Borrows in Euros: Credit Weekly. Bloomberg.