As DeepSeek eats into America’s AI edge, is US dollar dominance at risk?
The tech-heavy US stock market has been one of the pillars supporting the US currency’s global standing
Market discussions about the recent rise of Chinese artificial intelligence (AI) dark horse DeepSeek have taken on a new dimension, with some analysts suggesting that China’s rapid technological advances could boost the internationalisation of its yuan currency and weaken the global influence of the US dollar.
“If DeepSeek’s efficiency gains are verified, it is likely to lead to lower investment requirements and a flattening of technology barriers at a global level,” wrote Alex Holroyd-Jones, its multi-asset portfolio manager, in a news release headlined “How DeepSeek might dethrone the dollar” issued on February 7.
“Both will implicitly benefit energy-poor regions and relative tech laggards, thereby undermining one pillar of US exceptionalism.”
Holroyd-Jones said the United States’ technological leadership was one of three pillars that helped it attract global investors. However, with the rise of DeepSeek – which sparked an American AI stock sell-off in late January and fuelled calls for a re-evaluation of Chinese tech stocks – that technological leadership could face challenges, and that would have an impact on the US dollar’s strength.
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He said the other two pillars supporting the US dollar were expansionary government policy and higher US interest rates.