Oireachtas Joint and Select Committees
Tuesday, 25 November 2025
Committee on Budgetary Oversight
Budgetary and Financial Implications for Ireland from Waning Dollar Dominance as the World’s Reserve Currency: Discussion
2:00 am
Richard O'Donoghue (Limerick County, Independent Ireland Party)
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I ask everyone to turn off their phones and devices or put them on silent. Before we begin I wish to explain some limitations to parliamentary privilege and the practice of the House as regards reference that witnesses may make to any persons in their evidence. Witnesses are protected by absolute privilege in respect of the presentations they make to the committee. This means that witnesses have absolute defence against any defamatory actions for anything they say at this meeting. However, witnesses are expected not to abuse the privilege and it is my duty as Chair to ensure that the privilege is not abused. Therefore, if their statements are potentially defamatory in relation to an identified persons or entity, witnesses will be directed to discontinue their remarks. It is imperative that witnesses comply with any such direction.
I would like to remind the members of the constitutional requirement that in order to participate in public meetings members must be physically present within the confines of the Leinster House complex. Members of the committee attending remotely must do so from within the precincts of Leinster House. This is due to the constitutional requirement that in order to participate in a public meeting, members must be physically present within the confines of the place where the Parliament has chosen to sit. In this regard I would ask any member participating via Teams that prior to making contributions to the meeting they confirm they are on the grounds of the Leinster House campus.
Members are reminded that of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of a person or entity. Therefore, if their statements are potentially defamatory in relation to any identifiable persons or entity I will direct the members to discontinue their remarks. It is imperative that they comply with any such direction.
This afternoon's engagement is on the budgetary and financial implications for Ireland from the waning dollar dominance as the world's reserve currency. I welcome Dr. Niamh Wylie, assistant professor at Trinity College Dublin. The committee welcomes the opportunity to engage with you and I thank you for being here today. I now invite you to make your opening statement.
Dr. Niamh Wylie:
I thank the Chair and members of the committee for the invitation to speak today on the implications for Ireland from waning dollar dominance. I spent 15 years working in banking and the financial industry, including several years trading currency derivatives, before moving into academia at Trinity College Dublin where my research focuses on international finance and central bank monetary policy. My views today draw on both of these backgrounds. In my remarks I would like to explain why movements in the US dollar matter so much for Ireland, and why our position within Europe is especially unique in that regard. I will also set out the kind of measures that can help us manage the risks arising from shifts in the global currency landscape.
The first point to emphasise is that the dollar is not likely to lose its position as the world’s reserve currency any time soon. The evidence does not support that. It continues to dominate global trade invoicing, international payments systems and the currency exchange market. It also remains the largest component of central bank foreign exchange reserves. However, we are in a period of short-term dollar weakness due to uncertainty in US politics, large fiscal deficits, and expectations that US interest rates may fall sooner than those in Europe. At the same time, the euro has strengthened on improved growth sentiment and the view that the European Central Bank, ECB, will be slower to cut rates.
For most European economies this shift is noteworthy but manageable. For Ireland, it is considerably more significant. Ireland is, by far, the most US dollar–exposed economy in the euro area. Less than half of our exports go to the EU, and almost two thirds of all our non-EU exports are priced in dollars. The same is true on the import side, particularly for energy, chemicals, machinery and medical components. No other euro area member state has such a profile. This does not stem from exceptionally high direct trade with the United States but from the structure of the Irish economy itself. Our multinational sector, which underpins so much of our activity and tax base, is deeply embedded in US-linked global value chains. This structure means that when exchange rates move, the impact is immediate. A weaker dollar reduces the euro value of what we export, and it also lowers the euro value of our dollar-priced imports, even if the actual quantities traded stay the same. These valuation effects flow straight into corporate tax receipts, VAT and customs revenues, adding volatility to fiscal planning in a way that most other euro area economies do not experience.
Northern Ireland adds a further dimension. Since the introduction of the Northern Ireland protocol, trade with Northern Ireland has increased as supply chains have reorganised in ways that make Northern Ireland an important conduit within Ireland's external sector. Goods are increasingly routed through Northern Ireland, and Northern Ireland-related trade flows appear to react to global currency movements. This creates an additional transmission channel through which dollar movements feed into the Irish economy. It also makes Northern Ireland's position more complex. By trading heavily with the Republic while operating in a sterling environment, Northern Ireland-based supply chains become exposed to both euro–dollar valuation effects and euro–sterling competitiveness pressures.
In terms of policy responses, there is no single solution, but several practical steps can help to reduce vulnerability. Expanding access to hedging tools for SMEs, including forwards, swaps and basic risk-management instruments, would improve firms' ability to manage currency volatility. Uptake in Ireland remains low compared with international norms. Encouraging greater use of euro invoicing where appropriate could also reduce exposure at source. More broadly, maintaining national competitiveness will be essential. If the euro remains stronger within a more multipolar currency world, firms will need that resilience.
Looking ahead, the most likely near-term scenario is that the dollar remains under pressure, particularly if the Federal Reserve cuts interest rates before the ECB, and we could experience further weakness. In that environment, the euro would be likely to remain strong. However, a sustained rise in the euro would create competitiveness pressures. Irish exporters may reduce their euro prices to maintain market share or hold their prices and face falling demand. Either response tends to put pressure on margins, investment and employment.
These are long-run structural issues that cannot be fully hedged away. However, temporary supports for small firms may be justified in the case of a sharp or persistent euro appreciation. The wider European picture also matters. If Germany, which accounts for around one third of eurozone GDP, were to face prolonged export weakness, knock-on effects would be felt across the Continent, including here. However, in any global crisis, the pattern typically reverses, as the dollar would strengthen sharply as a safe-haven asset due to the immense depth and liquidity of the US Treasury market. That would raise the euro value of dollar-denominated transactions, but in a severe downturn, broader economic conditions could outweigh any exchange-rate effect.
Ireland's vulnerability arises from its unique position in Europe because the backbone of our economy is so closely tied into US-linked global supply chains. This gives us an unusual degree of exposure to the euro-dollar exchange rate. With the right tools, expanded hedging options, strengthened competitiveness and prudent fiscal policies, Ireland can manage these risks effectively as the global currency system continues to evolve.
I thank members for their time. I look forward to their questions.
Richard O'Donoghue (Limerick County, Independent Ireland Party)
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I thank Dr. Wylie.
Mairéad Farrell (Galway West, Sinn Fein)
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I thank Dr. Wylie for coming before the committee. I have four questions but I might ask them two at a time for the sake of clarity and also because I am conscious that a vote might be called at any moment.
Dr. Wylie's opening statement was really interesting. She said there is a case for strengthening fiscal safeguards in anticipation of any period of persistent dollar weakness. The likely view of the Government will be that the budget surpluses we have had are the strongest safeguard. I have some concern about the use of public money again to socialise losses incurred by US-owned financial sector companies to save our economy. Will Dr. Wylie discuss in greater depth what she would consider suitable fiscal safeguards?
Second, does she consider a collapse in revenue from our windfall corporation tax an inevitability at this time? Those are my first two questions. Would Dr. Wylie like me to put the other two questions now before she gives a response?
Mairéad Farrell (Galway West, Sinn Fein)
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That is no problem, and if she wants to talk about something else, that is absolutely fine. She stated in her briefing note that hedging practices among Irish SMEs remain quite limited. I am interested in this. Many of the SME owners I know, who have worked very hard to build up their business, tell me that a lot of things they try to do can be outside their normal knowledge base. Dr. Wylie suggested that expanding access to hedging products could help to reduce firm-level exposure. There is a concern that greater integration of SMEs into global financial architecture could expose them to greater risk in the long term in the event of global shocks. This is a concern in regard to the increased cost of hedging. Could consolidating strong trade links within the EU, particularly eurozone markets, be an effective risk-management strategy for SMEs if they are worried about potential global shocks to their business later?
Is Dr. Wylie concerned more broadly about the impact of financialisation on non-financial sector SMEs in Ireland that might then become more exposed to volatile financial markets? I ask all these questions with the precursor, obviously, that we hope none of those shocks happen.
Dr. Niamh Wylie:
We are in a unique position because of the structure of our economy, with 70% of our revenue and value added coming from foreign-owned multinationals. By comparison, other European countries would have only approximately 20% exposure. Our level of exposure to US multinationals means we are very exposed to movements in the euro-dollar exchange and any weakening of the euro. The trade we do is very concentrated in high-productivity sectors, which are all dollar invoiced. While they make up only 3% of our enterprises, they generate the vast bulk of our revenues.
On the SMEs and indigenous firms side, they are far less dollar exposed, with only about 12% of them exporting to the US. They are not as exposed to weakness in the dollar as is the rest of the economy. However, where they do have dollar exposure, we need to think about some hedging strategies. They are not like the multinationals, which have global treasury departments and are well able to manage their currency exposure. We can work with the SMEs on this. That may very well include an education initiative on how they can manage their exposure through FX forwards, FX options and so forth. It may also be the case that we need to help them understand where the exposures are in their businesses. If they are selling into the US market and their revenue is in dollars, there clearly is a risk that a weakening dollar translates into less euro. They may very well also have some costs in dollars, such as spending on marketing or advertising in the US, which could be offset inside their business. There is no one-size-fits-all hedging strategy that can be applied across SMEs. We can work with them to identify where there exposures are and help to limit the currency exposure that might hit their bottom line.
Mairéad Farrell (Galway West, Sinn Fein)
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A vote has been called in the Dáil but I should be fine to use the minute remaining to me. Dr. Wylie's response is really interesting. She said she has a background in derivatives. I used to work on settlements in derivatives. I am nowhere near the level of her expertise but I find them really fascinating. It is very interesting to me that she talked about SMEs perhaps going into that. Have we seen that already at this point? Are there SMEs that have done it?
Dr. Niamh Wylie:
In terms of international standards, our SMEs would not hedge as much as SMEs on the Continent. Perhaps between 20% to 40% of SMEs might have some hedging in place, but the figure is much higher on the Continent. There are myriad reasons for that. There is a complexity element and there is a cost element. There is a cost to hedging and you have to weigh up whether the cost is worth it. There is an education aspect as well. Many of our SMEs might not have exposures of sufficient size whereby they could go onto the market and buy FX forwards or options. There could be a situation where we could set up some kind of a pooling of SME funds-----
Mairéad Farrell (Galway West, Sinn Fein)
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That is what I was going to ask. Is that being done anywhere?
Mairéad Farrell (Galway West, Sinn Fein)
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Dr. Wylie said that it is only a certain number of SMEs. I cannot remember what percentage she used.
Mairéad Farrell (Galway West, Sinn Fein)
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Is there a type of business that tends to do that? Could such businesses have a representative organisation that could maybe look at the education side of things?
Dr. Niamh Wylie:
They would probably be larger businesses here, namely the ones that employ more staff. That would be the profile of SMEs that are exporting to the US. Some 70% of our SMEs do not export. In comparative terms, those that are exporting to the US tend to be the bigger SMEs. Perhaps there is scope for hedging products in respect of those firms should they be exposed to further dollar weakness. Again, however, it is not a one-size-fits-all scenario. There may very well be cost savings in their businesses on the basis of dollar weakness which may actually help with their costs in other areas.
Mairéad Farrell (Galway West, Sinn Fein)
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That is brilliant. There is a vote in the House. Unfortunately, after it takes place I have to go to another meeting and will not be able to return here. I thank Dr. Wylie so much. That was fascinating.
Richard O'Donoghue (Limerick County, Independent Ireland Party)
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We are now back in public session. I call Deputy Timmins.
Edward Timmins (Wicklow, Fine Gael)
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Thank you, Chairman, and thank you, Dr. Wylie, for your very informative opening statement and attached document.
I have a couple of questions that have been covered a little bit already but I would like to expand on them. What is the effect on multinationals of the approximate 10% dollar drop, which reached its peak around June? Most of these Irish-based US multinationals do their invoicing in dollars to the US. They are from the US and I presume that is where most of their exports go. I expect this would reduce their profits in euro here and their declared corporation tax profits. Their income is denominated in euro in this country. In theory this should lead to slightly lower corporation tax receipts from the multinationals. This may not be significant but is there any evidence that could happen?
Dr. Niamh Wylie:
There is significant evidence. I draw the attention of Deputy Timmins to a model I have put together to show the exposure of our economy to movements in the dollar. Slide 4 in the additional materials shows where I gathered data from the CSO on monthly trade data over five years on imports and exports across the US, the UK and-----
Edward Timmins (Wicklow, Fine Gael)
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Is this part of the appendix in the document we received?
Edward Timmins (Wicklow, Fine Gael)
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It is not in the ten-page document.
Edward Timmins (Wicklow, Fine Gael)
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I will look at the slide on the screen.
Dr. Niamh Wylie:
It demonstrates the impact of a weaker dollar on our trade numbers. The table shows the elasticity and what percentage of our trade moves with a 1% rise in the euro to dollar rate, which is a weakness in the dollar. What the model tells us is that we are highly exposed to dollar weakness. We are very exposed regarding both our exports and our imports. Exports and imports both fall as there is a rise in the euro to dollar rate, as we have seen this year. We also see that exports in general are falling more than imports are. That is a direct hit on revenues, and it speaks to Deputy Timmins's point on corporation tax and a reduction in receipts.
Edward Timmins (Wicklow, Fine Gael)
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Is that primarily down to lower volumes or just the currency differential?
Dr. Niamh Wylie:
It would affect our exports, which are clearly down. With regard to imports, it is more of a valuation effect. If the dollar is weaker, any revenue the multinationals generate abroad to be booked in profit here translates into a lower dollar value. That is all with the quantities staying the same.
Edward Timmins (Wicklow, Fine Gael)
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It may well have an impact on corporation tax receipts, which we will not see until next year.
Edward Timmins (Wicklow, Fine Gael)
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I have another question Dr. Wylie has covered a little bit already. Is there any simple way to manage hedging instruments for small and medium-sized Irish companies? I know very few of them export. I worked for an Enterprise Ireland company that did some exports to the US and we did not bother going through the task of hedging and all it involves and the administration. A small company might get one very large order and there could be a high level of risk in that order. Are there simple instruments that small Irish indigenous companies could use to hedge on a one-off order? Perhaps a small company with a small turnover might get an order worth $500,000.
Dr. Niamh Wylie:
It could hedge with a forward contract, whereby it locks in the exchange level now. If it were exposed to bringing dollars back to Ireland, it could lock in the rate through a forward contract. They are over-the-counter contracts. The company would approach a financial institution to trade it. The key is that it would lock in the rate today to buy the dollars later. If, for instance, the currency pair went in the company's favour, it would still be locked in at that rate today.
Dr. Niamh Wylie:
That is the forward contract. There are also foreign exchange options whereby the downside is removed and only the upside is received. In that case, the company would only receive a payout if the contract were favourable, and a premium is paid for that. It is like an insurance policy. It is something the firm would have to decide as to whether it is worthwhile to do.
Edward Timmins (Wicklow, Fine Gael)
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It would have to weigh it up as there is a cost and there is administration.
Edward Timmins (Wicklow, Fine Gael)
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Is there any evidence that imports in US dollars have increased since the dollar dropped to €1.15 in June? I know it is only five months ago but is there any evidence we are importing more from the US?
Edward Timmins (Wicklow, Fine Gael)
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Is that the ten-page document?
Edward Timmins (Wicklow, Fine Gael)
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That is only two months after it hit €1.15 in early June. It is a bit early to tell.
Edward Timmins (Wicklow, Fine Gael)
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The graphs are in euro values.
Dr. Niamh Wylie:
It is just a translation effect and a valuation effect. Many of these multinationals would have fixed contracts. There would be fixed terms in the contracts that would very often be negotiated based on currency weakness. That could be a reason the quantities then change in relation to dollars.
Edward Timmins (Wicklow, Fine Gael)
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I am conscious of my time so I will go through my next questions. Is there any evidence of long-term stability between major world currencies? Are there long-run averages between the euro and the dollar or the yen and whatever else? I would have thought globalisation would point towards more mutual dependency and, hence, more stability. A new US President can obviously cause certain fluctuations with tariffs.
Edward Timmins (Wicklow, Fine Gael)
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That aside, is there evidence that long-run averages of currencies are more stable than they were in the past? That would be a good thing for businesses when planning. Given all of the interdependencies of various world economies, is there evidence the long-run averages of currency fluctuations are diminishing over time?
Edward Timmins (Wicklow, Fine Gael)
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That is not what I mean. The euro has been around for only 25 years. Are there signs that the fluctuations between the euro and the dollar are not as haphazard, random or chaotic as they were?
Dr. Niamh Wylie:
I have information in my additional materials.
I have a chart on the history of the euro-dollar exchange rate. The euro has only been around since 1999. I have detailed all of the crisis points. We can see where the rate is at the moment. The very big moves on the chart were linked to crisis levels. We had the dotcom bust in 2000. We had the global financial crisis, the European sovereign bond crisis, Brexit and Covid. In the context of stability, provided there are no more crises, we could see stability within the euro-dollar exchange rate.
The ECB describes the euro as being particularly stable. It is looking at the euro as a potential reserve currency to accompany the dollar.
Edward Timmins (Wicklow, Fine Gael)
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That is in future decades
Richard O'Donoghue (Limerick County, Independent Ireland Party)
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Dr. Wylie stated earlier that almost two thirds of our exports to non-EU countries are priced in dollars. The same is true on the import side, particularly in the context of energy, chemicals, machinery and medical components. We spoke about 70% of our trade being with multinationals. We also have the SMEs.
I looked at the graphs relating to tariffs and market fluctuations. Multinationals are one of our main income tax earners, but I want to look at this from the point of view of SMEs and affordability when it comes to construction and agricultural machinery coming into this country. People are saying that we have to get to the stage where we are supporting the environment. However, when companies seek to invest in machinery, they find that prices are at an all-time high. For example, a company could have bought a tractor for €100,000 five years ago. That same tractor now costs €150,000. It is the same vehicle with the same horsepower, but there has been an increase of 50% in the price.
From the point of view of making businesses in the agriculture and construction sectors more viable, if a company brings something into this country fully kitted out, for example, a car, there are, under EU law, certain shipping and machinery costs. However, if a company brings in a consignment of, for example, tractors in containers and if those vehicles have no wheels on them and need load of components put into them, would it keep its costs down if they are assembled here? If the answer "Yes", it would mean that they would also manufacture here. If we bring the components in from other countries and assemble the vehicles here, would that help businesses from a viability point of view because they would not be buying something that is complete? From the perspectives of tax and manufacturing, would it keep the price of vehicles, such as tractors and trucks, here affordable?
Dr. Niamh Wylie:
I am going to go back to the Chair's point about the level of dollar invoicing that occurs in Ireland, which makes us an outlier in Europe. According to figures from the European Commission - these are in the additional briefing material - we have the lowest level of euro invoicing for our imports and exports and we have the highest level of dollar invoicing. That is where our exposure lies. One of the solutions could be that we encourage firms to engage in more euro invoicing, particularly where we are building machinery on the island of Ireland. That may very well be coming because these tariffs are from 2023. Our exports to and imports from Europe are increasing all the time, which may help with the euro invoicing. It would also mean that we would not be as exposed to currency movements.
Richard O'Donoghue (Limerick County, Independent Ireland Party)
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Most of the multinationals based in this country are based in or around cities, while a lot of our manufacturing SMEs are more rural based. I understand that 70% of revenue comes from multinationals, but how would euro invoicing help us to secure employment in SMEs that are manufacturing and exporting products, especially when it comes to tariffs?
Richard O'Donoghue (Limerick County, Independent Ireland Party)
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Okay.
Dr. Niamh Wylie:
We have so much dollar invoicing. We should try to shift some of that. It is up to our SMEs. As a result of the fact that they have more contained supply chains within Ireland, they could invoice more in euro. As the Chair said, the issue is that we are dealing in products, particularly technology and machinery products, that are sold on global dollar markets. As a result, they are priced globally in dollars. If we can, we should try to encourage more euro invoicing, particularly in the area of exports. We should have some power to price in euro.
Richard O'Donoghue (Limerick County, Independent Ireland Party)
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Multinational companies here that have sister companies in other four or five other countries and that are adhering to the guidelines might benefit from invoicing in dollars. Why would they invoice one of their sister companies in euro as opposed to dollars? In terms of the breakdown, how many of these multinational companies would not invoice their sister companies in other countries in dollars?
Dr. Niamh Wylie:
If we look at the trade numbers, we can see that when the dollar is weak and there is a strong euro, it hits our exporters. There is a competitiveness element there that we are at risk of, particularly in markets where we compete directly with the UK, for instance. That really comes through in the model as well.
Our US exports have also dropped. In addition, our exports in many of these sectors have also come down.
Richard O'Donoghue (Limerick County, Independent Ireland Party)
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What I understand from this is that, basically, in order to try to put something in place, a strong dollar benefits Ireland.
Richard O'Donoghue (Limerick County, Independent Ireland Party)
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In the case of a drop in the value of the dollar, however, if we started a slight shift in invoicing in euros, that would actually be a protection going forward in the event that the dollar weakens. Is that correct?
Richard O'Donoghue (Limerick County, Independent Ireland Party)
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Does Dr. Wylie have any other comments to make on foot of questions which were asked and which she might not have had an opportunity to answer?
Richard O'Donoghue (Limerick County, Independent Ireland Party)
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That concludes this session. I thank everyone who attended. I thank Dr. Wylie for attending and for the information she provided.