The world’s most-traded currency is becoming a fear gauge.

That’s the opinion of Hyun Song Shin, head of research at the Bank for International Settlements. A stronger dollar can depress demand for credit while reflecting reduced investor appetite for the riskiest assets, Shin wrote in a report released Tuesday by the BIS.

The research signals that the dollar’s surge after Donald Trump’s U.S. electoral victory shouldn’t be interpreted as a clear sign of confidence across markets. In fact the dollar has become a new fear gauge, replacing the Chicago Board Options Exchange VIX volatility index, Shin wrote.

“The mantle of the barometer of risk appetite and leverage has slipped from the VIX and has passed to the dollar,” he said. “Given the dollar’s role as barometer of global appetite for leverage, there may be no winners from a stronger dollar.”

Years of monetary easing by global central banks has kept volatility low for stocks while compressing credit spreads. That has stripped predictive power from the VIX. At the same time it has pushed more international borrowers and investors toward the dollar.

Dollar Liabilities

Given the global increase in dollar-denominated liabilities, a stronger currency may lead to lower appetite for investment risk and reduced demand for dollar-lending to acquire relatively volatile assets, according to the report published by the Basel, Switzerland-based institution that represents central banks.

The VIX is a measure of implied volatility calculated from what investors pay for options on the S&P 500 stocks index. Before the financial crisis in 2008, there was a close relationship between leverage and the index, according to the research. When the VIX was low, borrowing appetite increased and vice versa.

The crisis, however, forced policy makers to cut borrowing costs to record lows, quelling price swings. The gauge, which has averaged about 16 this year, was a far cry from record 80.9 almost eight years ago.

Negative Interest Rates

As interest rates fell, in some cases to negative levels, investors searched for higher-yielding assets. Given the global role of the dollar as a borrowing currency of choice, most of those assets are denominated in U.S. currency. Long-term yields for dollar securities, for example, have been higher than similar-maturity bonds in Japan, the euro area and Switzerland.

For institutional investors with global portfolios of assets, they need to mitigate the risk of currency mismatches between assets they hold and domestic liabilities. This involved hedging, which is mostly done through banks. These banks also lay off their own risk by borrowing dollars. This demand implied a dollar “shortage” that made the financial sector more vulnerable to the strength in U.S. currency, BIS researchers said.

“The risk-taking channel of exchange rates turns on the impact of dollar appreciation in a world where many balance sheets have dollar liabilities,” they said. “When so many borrowers have borrowed so much in dollars, whether for hedging or speculative purposes, dollar appreciation exposes borrowers and lenders to valuation changes and, in turn, impacts their balance sheets.”

This article was provided by Bloomberg News.