DE-DOLLARIZATION: WHAT IS IT, AND IS IT HAPPENING?

Why In News?

The Parliamentary Standing Committee on External Affairs questioned whether India will push a de-dollarisation agenda at the 18th BRICS Summit in New Delhi this September.

What is De-dollarisation?

De-dollarisation refers to the process by which countries reduce their dependence on the US dollar for trade invoicing, financial transactions, and reserve holdings.

Reducing dependence on the US dollar: Countries seek to avoid routing every cross-border transaction through the dollar.

Use of local currencies: Trading partners settle bilateral trade directly in their own currencies (e.g., rupee–rouble trade between India and Russia).

Alternative payment systems: Development of non-dollar, non-SWIFT payment rails, such as BRICS Pay, China's CIPS, Russia's SPFS, and India's UPI.

Diversification of foreign exchange reserves: Central banks increase holdings of gold and non-dollar currencies to reduce concentration risk.

Why is the US Dollar Dominant?

Global reserve currency: Most central banks worldwide hold the dollar as their primary reserve asset due to its stability and liquidity. 

• According to IMF COFER Data, the US dollar accounts for 57.13% of global allocated foreign exchange reserves.

• The Euro makes up roughly 20.03%, the Japanese Yen represents 5.44%, and the British Pound stands at 4.40% of global official reserves.

International trade: A large share of global trade invoices are dollar-denominated, reducing conversion friction for exporters and importers.

• The US dollar is one side of roughly 88% of all global foreign exchange market transactions, showing its unmatched liquidity as a medium of exchange.

Commodity pricing: Oil and several other global commodities are priced in dollars — the so-called "petrodollar" system.

International banking: Most cross-border banking messages route through the dollar-dominated SWIFT system. 

• The US dollar fluctuates between 40% and 48% of total international payment transaction share handled through the SWIFT messaging network.

Deep and liquid financial markets: US Treasury and capital markets offer unmatched depth, making the dollar the default safe-haven and settlement currency.

Why De-dollarisation Becoming An Attractive Option?

Geopolitical sanctions: Western sanctions on Russia (post-2022) and pressure on Iran demonstrate how dollar-based systems can be used as strategic leverage, pushing affected countries toward alternatives  

Financial restrictions: Countries facing or fearing exclusion from SWIFT seek parallel payment infrastructure to safeguard trade continuity.

Exchange rate risks: Heavy reliance on a single currency exposes trading nations to volatility from US monetary policy decisions (e.g., Fed rate changes).

Dependence on dollar-based payment systems: Overreliance on SWIFT/dollar clearing creates a single point of failure for national trade.

Search for greater strategic autonomy: Emerging economies, including India, seek policy space independent of dollar-linked constraints, especially amid US tariff threats against countries pursuing dollar alternatives.

What is India's Position on De-dollarisation?

No policy to replace the US dollar: RBI officials have stated clearly, "There is no policy on our part to replace the dollar".

Promotion of rupee internationalisation: India pursues gradual, calibrated steps to expand rupee usage abroad, distinct from an anti-dollar campaign.

Local currency settlement: India supports settling bilateral trade in local currencies as a risk-diversification tool, not dollar replacement.

Diversification of payment options: India backs interoperable payment systems (e.g., UPI-linked BRICS Pay pilot) as additional, not substitute, channels.

Strategic autonomy: India's approach reflects its broader foreign policy of multi-alignment — engaging the dollar-based Quad framework while simultaneously deepening BRICS and SCO financial cooperation  

The RBI officially describes rupee-based international trade settlement as an "additional and complementary arrangement" to existing freely convertible currency-based systems, not a replacement  

What is BRICS' Role In De-dollarisation?

Expansion of BRICS: The bloc has grown to 11 full members plus 10 partner countries; together BRICS accounts for roughly 40% of global GDP (PPP) and nearly half the world's population.

Local currency trade: Members settle intra-BRICS trade outside the dollar; one industry estimate (Kunvarji Wealth Report) suggests roughly 50% of intra-BRICS+ trade has already shifted away from the dollar.

Cross-border payment systems: The BRICS Pay pilot links national systems — India's UPI, Russia's SPFS, China's CIPS, and Brazil's Pix — targeting full operational deployment at the September 2026 New Delhi Summit.

Financial cooperation: The BRICS Interbank Cooperation Mechanism extends local-currency credit facilities to boost intra-bloc trade financing.

New Development Bank (NDB): Established in 2014, headquartered in Shanghai, the NDB has approved $42.9 billion across 139 projects as of April 2026, targeting 30% local-currency lending to reduce dollar-denominated debt exposure.

Greater voice for emerging economies: BRICS positions itself as a platform for the Global South to shape trade and finance rules historically dominated by Western institutions.

BRICS has not adopted, and is not actively pursuing, a single common currency; a "BRICS dollar" does not exist as of 2026.

Source: THEHINDU