[Burning Issue] The Rising Demand for De-Dollarisation



  • The BRICS collective, comprising Brazil, Russia, India, China and South Africa, is working on a common currency in an attempt to ditch the US dollar and push back against America’s dominance.
  • The move comes as Moscow and Beijing call for de-dollarisation in the face of Western sanctions.
  • In this context, this edition of the burning issue will elaborate on this idea of de-dollarisation.

Background of the news

  • The US dollar has been the official currency for international trade for years now. However, in recent times there have been talks of creating a new currency in an attempt to dump the dollar and push back against American hegemony.
  • This de-dollarisation has received a boost in recent times, especially after the Russia-Ukraine war began last February.
  • This movement received further impetus when the news broke out that the BRICS nations are in the process of creating a new medium for payments — established on a strategy that “does not defend the dollar or euro”.

About US Dollar: The Global Currency

  • The U.S. dollar has been the world’s dominant currency since the end of World War II.
  • Roughly half of the international trade, international loans, and global debt securities are denominated in USD.
  • The USD became the official reserve currency of the world in 1944. The decision was made by a delegation from 44 Allied countries called the Bretton Woods Agreement.
  • Despite the challenges faced by the US economy due to fiscal and external deficits of the 1980s, the dollar’s share of global reserves remained steady and reserves even grew as time progressed.
  • The dominance of the dollar is backed by strong and highly credible institutions, deep markets and the fact that it is freely convertible.
  • Almost 40% of the world’s debt is issued in dollars. As a result, foreign banks need a lot of dollars to conduct business. This became evident during the 2008 financial crisis.

What is de-dollarisation?

  • The US dollar has been called the king of currency. It became the official reserve currency of the world in 1944. The decision was made by a delegation from 44 Allied countries called the Bretton Woods Agreement.
  • Since then, the dollar has enjoyed a powerful status in the world. It has given the US a disproportionate amount of influence over other economies. In fact, the US has for long used the imposition of sanctions as a tool to achieve foreign policy goals.
  • However, not everybody likes playing by US rules and countries like Russia and China have called a halt to dollar hegemony. This process is called DE-DOLLARISATION — and it refers to reducing the dollar’s dominance in global markets. It is a process of substituting the US dollar as the currency used for trading oil and/or other commodities.
  • To punish Russia for its invasion of Ukraine, western governments froze $300 billion of Russia’s foreign currency reserves last year, roughly half the total, and expelled Russian banks from the Swift international payments system.
  • As Jason Hollands, managing director of investment platform Bestinvest, explains, “The so-called DOLLAR “WEAPONISATION” has rattled many countries and not just Russia.”

Some recent examples

  • Countries willing to continue to trade with RUSSIA, like India and China, have started doing so in rupees and yuan instead, triggering talk of the de-dollarisation of the international trading order.
  • BRAZIL and CHINA are now trading with each other in yuan, helping to establish the Chinese renminbi as an international currency and dollar challenger.
  • INDIA too has been trying to move away from the dollar. Recently, 18 countries, including UK, Germany, Russia and even the United Arab Emirates, have been given permission to trade in Indian rupees. In February, noted economist Nouriel Roubini had said that the Indian rupee over time could become one of the global reserve currencies in the world.
  • Taking this forward, the BRICS collective —is also mulling over creating a new currency to facilitate trade. It is reported that the new financial agreement could be seen as soon as in August when the countries meet for their annual summit in South Africa.

Proponents of de-dollarization

  • Reduce dependence on US: The proponents of de-dollarisation say that this process would reduce other countries’ dependence on the US dollar and the US economy.
  • Decouple from US Economy shocks: It could help mitigate the impact of economic and political changes in the US on their own economies.
  • Improve economic stability: countries can reduce their exposure to currency fluctuations and interest rate changes, which can help to improve economic stability and reduce the risk of financial crises.
  • Reducing share in forex: In 2022, the International Monetary Fund noted that central banks today are not holding the greenback as reserves in the same quantities as yesteryear. The dollar’s share of global foreign-exchange reserves fell below 59 per cent in the final quarter of last year.

Impact of de-dollarization

  • Decrease in demand for the U.S. dollar: If more countries switch to using their own currencies or other currencies (e.g. euro, yuan) in international transactions, the demand for U.S. dollars could decrease. This could potentially lead to a decrease in the value of the dollar relative to other currencies, which could make imports more expensive for the United States and reduce the purchasing power of Americans abroad.
  • Reduced role of the United States in the global financial system: If the U.S. dollar loses its status as the world’s reserve currency, the United States could lose some of its power and influence in global financial affairs. This could potentially weaken the U.S. economy and reduce its ability to borrow money at favorable rates.
  • Increased volatility in currency exchange rates: As more countries move away from the U.S. dollar, there could be increased volatility in currency exchange rates, which could make international trade more difficult and expensive.
  • Potential benefits for other currencies: If the U.S. dollar loses some of its dominance, other currencies (such as the euro or yuan) could potentially benefit from increased demand and become more widely used in international transactions.
  • Volatility in global markets: As the demand for the US Dollar is decreasing in the world, US bonds are also falling, and in order to make them float, banks like SVB have no solution but to offer higher interest rates, which burn holes in their liquidity and thus causing their collapse. Such collapse impacts the world economy,

What is India’s plan: Internationalisation of the Rupee

  • The process of increasing the use of local currency in cross-border transactions is known as the internationalization of the rupee. Promoting the rupee for use in import and export trade, other current account transactions and capital account transactions are all components of this strategy.
  • Recently, a deputy governor of the Reserve Bank of India (RBI) emphasized the benefits and dangers of the rupee’s internationalization. The RBI has also launched a mechanism in July 2022 to make rupee-based international trade easier.
  • About 35 nations have expressed an interest in learning more about how the rupee trade mechanism works. India would save money on foreign exchange if it were able to begin rupee trade even with some of them.


  • Indian businesses can reduce currency risk by using the rupee in cross-border transactions. Security from cash instability not just lessens the cost of carrying on with work, it likewise empowers better development of business, working on the opportunities for Indian business to universally develop.
  • India will be less susceptible to external shocks if it reduces its reliance on foreign currency. For instance, during periods of financial fixing in US and reinforcing dollar, unreasonable unfamiliar cash liabilities of homegrown business bring about a true homegrown fixing. The impact of capital flow reversals would be significantly lessened if currency risk was reduced.
  • It lessens the requirement for holding unfamiliar trade saves. Reserves cost the economy, but they help control exchange rate volatility and project external stability.
  • The bargaining power of Indian businesses would increase as the rupee becomes more important, adding weight to the Indian economy and enhancing India’s global standing and respect.


  • A diminished role for convertible currencies in external transactions may result in lower reserve accretion.
  • However, if the trade deficit is funded in rupees, the requirement for reserves would also decrease.
  • Rupee holdings held by non-residents might make it harder for domestic financial markets to absorb stimulus from outside the country, which would raise volatility.
  • Non-residents, for instance, might convert their Rupee holdings and leave India during a global risk-off period.


  • India is looking into signing rupee trade agreements with some countries, particularly those with deficit-ridden economies. India would benefit from payments being made in rupees when imports are greater than exports.
  • At the moment, the US dollar is the currency of choice for international trade. Because of this, the value of the dollar can affect trade between countries. India’s reliance on the US dollar will be lessened by transactions in rupee.
  • Even though the current situation prevents the rupee from becoming a reserve currency like the US dollar, it is a small first step. The prospects for bilateral trade with India will improve as more nations begin to invoice in rupees for their exports and imports.

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