The Platform

Photo illustration by John Lyman

For now, the de-dollarization movement has been embraced by countries at odds with the United States.

The de-dollarization movement has gathered pace as some countries outside the West seek to reduce their reliance on the dollar and increase their economic independence. This trend has been driven by a range of economic and geopolitical factors, including the challenges faced by countries that are subject to U.S. sanctions.

A number of countries are actively pursuing de-dollarization. The list of countries pursuing this strategy is fairly limited to countries outside the West or that have pursued a more nuanced foreign policy. Some of these countries include China, Russia, Brazil, India, some ASEAN members, Saudi Arabia, and the UAE. Notably, India, a long-standing ally of the U.S., has begun promoting the rupee as an alternative to the dollar in global trade. Importantly, it should be stressed that countries using alternative currencies have done so out of necessity. Kazakhstan for example, still has a significant amount of trade with Russia so using the ruble is necessary. Conversely, some European countries have been forced to buy Russian oil and natural gas in rubles.

India has recently unveiled a new foreign trade policy, allowing the use of the rupee in trade with countries experiencing dollar shortages or currency crises. Malaysia has also joined this scheme, signaling a growing interest in the use of alternative currencies. India’s central bank decided in July of last year to allow international trade to be settled in rupees, aiming to increase global trade and support traders using the currency. India already trades in rupees with Russia, Mauritius, Iran, and Sri Lanka.

Beyond trade policy, India is also exploring an alternative to SWIFT in collaboration with Russia and China. This move could enable India to trade with countries under U.S. sanctions using their own currencies, a potentially significant shift in global financial transactions. India plans to integrate its domestic financial messaging system with Russia’s SPFS and China’s CIPS, indicating a willingness to take a leading role in the de-dollarization movement.

India’s interest in exploring an alternative to SWIFT can be traced back to the sanctions imposed on Iran by the U.S. and its allies. These sanctions have severely restricted Iran’s ability to use the global financial system for trade and investment, as most banks are wary of transacting with the country due to the risk of being penalized by the U.S.

India’s interest in these systems is driven by its desire to reduce its dependence on the U.S. dollar and avoid the risk of being cut off from the global financial system in the event of U.S. sanctions. By linking its own domestic financial messaging system with SPFS and CIPS, India would be able to settle transactions with these countries using their own currencies, even if they are under U.S. sanctions.

Furthermore, India’s interest in de-dollarization is also influenced by its growing economic ties with Russia and China. India is one of the largest importers of crude oil from Russia, and the two countries have been working on increasing their bilateral trade in other sectors as well. Similarly, India and China have been expanding their economic cooperation in recent years, with the two countries setting a target of $100 billion in bilateral trade by 2022.

Given these factors, it is not surprising that India is actively exploring alternatives to SWIFT and seeking to deepen its economic ties with Russia and China. However, it remains to be seen how successful India will be in promoting the use of these alternative payment systems and reducing its dependence on the U.S. dollar, especially given the dominance of the dollar in the global financial system.

However, the de-dollarization process is not a simple one, and it will take many years for any currency to challenge the dominance of the dollar. Currently, the dollar accounts for over 58% of global foreign exchange reserves, while the Chinese yuan accounts for only 2.7%. Additionally, the dollar is widely used for pricing and trading commodities, especially oil. The U.S. also has significant influence over global financial institutions and trade.

Despite these challenges, the de-dollarization trend is accelerating, and it could have serious consequences for the U.S. economy. The U.S. dollar has long enjoyed a privileged position as the world’s main reserve currency, which confers benefits such as cheap borrowing, large trade deficits, and global influence. However, if other currencies displace the dollar as a store of value and a medium of exchange, the U.S. could face higher borrowing costs, lower demand for its assets, and reduced geopolitical power. The dollar’s role as a safe haven asset and a global liquidity provider would also be challenged if a new reserve currency or multipolar currency world emerged, potentially leading to financial instability.

As more countries switch to other currencies for commodity transactions, the U.S. would face higher import prices and increased volatility in the global commodity markets, which could harm the U.S. economy’s growth and stability. Ultimately, de-dollarization is a complex and lengthy process, but the trend is clear and undeniable. The U.S. must prepare for a world where its currency is no longer the primary choice for global trade and investment.

Afia Atiq Malik is an Islamabad-based independent researcher and is currently pursuing her Ph.D. in International Relations from the University of Wyoming.