Almost 60 per cent of global foreign exchange reserves are held in US dollars, and most international commodities (like oil and gold) are priced in dollars. Thus, achieving widespread de-dollarisation would require significant shifts in global markets, financial infrastructure, and policy.
The debate on de-dollarisation of global trade has sharpened in recent weeks following Donald Trump’s warning that he would impose hefty tariffs on countries which choose to use other currencies.
Trump’s stance on de-dollarisation has been largely defensive of the US dollar’s global role. He sees the dollar’s dominance as a cornerstone of US economic and geopolitical power. In his first stint as President, he acknowledged the efforts of countries like China and Russia to reduce reliance on the US currency and his administration worked to maintain and strengthen the dollar through trade policies, sanctions, and financial regulations. Trump’s approach to de-dollarisation is, therefore, one of opposition, with a focus on ensuring that the US dollar remains the world’s primary reserve and trade currency.
De-dollarisation of trade is theoretically feasible, but it faces substantial challenges, including the global dominance of the US dollar, the need for alternative liquid and stable currencies, and the complex adjustments required in global trade infrastructure. Both India’s RBI and its External Affairs Ministry are cautiously exploring the potential for reducing dependence on the dollar, particularly through initiatives like INR-based trade agreements and exploring digital currencies. However, they stress the importance of gradual, pragmatic approaches to such transitions, balancing national interests with global financial stability.
The feasibility of de-dollarisation depends on various factors. Among them is the global dominance of the US dollar: The US dollar is the world’s dominant reserve currency and is deeply integrated into global trade, finance, and investment. Approximately 60 per cent of global foreign exchange reserves are held in US dollars, and most international commodities (like oil and gold) are priced in dollars. Thus, achieving widespread de-dollarisation would require significant shifts in global markets, financial infrastructure, and policy.
Yet, challenges remain. While China and the European Union have promoted the use of the Chinese Yuan and Euro, respectively, for trade, these currencies do not yet match the liquidity, stability, and trust that the US dollar enjoys. The Eurozone and China would need to deepen financial integration and market acceptance for their currencies to serve as stable alternatives on a global scale.
