De-dollarization: The Global Shift Away from the

US Dollar in Trade and Reserves

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 Bangladesh University of Professionals
Department of Business Administration-General
Bachelor of Business Administration (BBA)
Term paper on De-dollarization: The Global Shift Away from the US
Dollar in Trade and Reserves
International Financial Management (FIN4810)
Batch: BBA 2021
Submitted To
Sinha Marzuka Sultana
Lecturer
Department of Finance and Banking
Submitted By
Group- 7
Sr. Name ID
1. Sadia Mariam 2123011064
2. Armana Tarannum Khan 2123011086
3. Farzin Ahmed 2123011114
4. Umme Farzana Rupa 2123011132
5. Golam Morshed Swachchha 2123011134
6. Safin Sadique 2123011135

Submission Date: 1st July, 2025

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Executive Summary

This paper examines the accelerating global trend of de-dollarization, the process by which
countries reduce their dependence on the U.S. dollar in international trade, finance, and
reserves. Although the dollar has long been the cornerstone of the global monetary system, its
dominance is increasingly being challenged by a combination of geopolitical, economic, and
technological developments.

The study begins with a review of the historical foundations of dollar dominance, tracing its
rise from the Bretton Woods Agreement through the establishment of the petrodollar system.
The dollar’s central role in trade, reserve accumulation, and sovereign debt gave the United
States a unique financial advantage and global influence.

In recent years, however, several key trends have emerged that signal a shift away from this
dollar-centric system. These include a diversification of central bank reserves, a growing
number of bilateral trade agreements using local currencies, and the development of alternative
financial messaging and settlement systems such as China’s CIPS, Russia’s SPFS, and BRICS
Pay.

Geopolitical tensions have further fueled de-dollarization, particularly in response to the use
of financial sanctions by the United States. Countries such as Russia, China, and members of
the BRICS bloc have actively sought to insulate themselves from dollar-based vulnerabilities
and expand their financial sovereignty.

The paper also explores the economic motivations behind this shift. Nations are aiming to
reduce transaction costs, enhance monetary policy independence, and safeguard their foreign
exchange reserves from political risk. Regional alliances are playing a significant role in this
process, with BRICS and Gulf countries taking deliberate steps to promote local-currency trade
and reduce reliance on dollar-denominated oil transactions.

Several case studies, including Russia’s increased use of the ruble and yuan, China’s Belt and
Road Initiative, and the Middle East’s move toward reserve diversification, illustrate the
practical implementation of de-dollarization strategies. These changes are already affecting
multinational corporations (MNCs), which now face heightened exposure to currency risk,

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trade finance complications, and evolving hedging requirements in a more fragmented
monetary landscape.

The paper concludes with a discussion of future scenarios, including the possibility of a
tripolar reserve system (U.S. dollar, euro, and Chinese yuan), regional currency blocs, and the
use of digital currencies or commodity-linked assets in international settlement. While the U.S.
dollar remains the dominant reserve currency, the evidence suggests a gradual but steady
erosion of its influence as the global financial system transitions toward a more multipolar
structure.

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Contents

Executive Summary ................................................................................................................... 3

1. Introduction ............................................................................................................................ 8

2. Origins of Dollar Dominance................................................................................................. 8

2.1 Role of the Dollar in International Trade, Debt, and Reserves ........................................ 9

3. Recent Trends in De-Dollarization ...................................................................................... 10

3.1 Shift in Central Bank Reserve Compositions ................................................................ 10

3.2 Rise in Bilateral Trade Agreements Using Local Currencies ........................................ 10

3.3 Reduction of Dollar-based Foreign Debt ....................................................................... 11

3.4 Alternative Payment Systems ........................................................................................ 11

3.4.1 Cross-Border Interbank Payment System (CIPS) ................................................... 11

3.4.2 System for Transfer of Financial Messages (SPFS) ............................................... 12

3.4.3 Instrument in Support of Trade Exchanges (INSTEX) ........................................... 12

4. Economic and Financial Motivations of De-Dollarization .................................................. 12

4.1 Reducing Transaction Costs and Promoting Bilateral Trade ......................................... 12

4.2 Gaining Monetary Policy Independence ........................................................................ 13

4.3 Diversification of Foreign Reserves .............................................................................. 13

5. Geopolitical Drivers ............................................................................................................. 14

5.1 Weaponization of the Dollar Through Sanctions ........................................................... 14

5.1.1 Historical Context and Modern Usage .................................................................... 14

5.1.2 Impacts and Backlash ............................................................................................. 14

5.2 Strategic Alliances: Russia & China’s Financial Pivot .................................................. 15

5.2.1 Accelerating Currency Partnerships ........................................................................ 15

5.3 Sanctions on Third-Party Facilitators ............................................................................ 15

5.4 Erosion of the Dollar’s Safe-Haven Image .................................................................... 16

5.4.1 Markets Push Back ................................................................................................. 16

5.5 Strategic Diversification by Other Nations .................................................................... 16

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 5.5.1 Trump-Era Warnings and Pushbacks ...................................................................... 16

5.5.2 European Discontent ............................................................................................... 17

6. The Role of BRICS and Regional Alliances ........................................................................ 17

6.1 Expanding and Cohesive Economic Bloc ...................................................................... 17

6.2 Local-Currency Trade and Currency Swap Agreements ............................................... 18

6.3 Building Non-Dollar Trading Infrastructure .................................................................. 18

6.3.1 Gulf Nations Exploring Non-Dollar Oil Trade ....................................................... 18

6.3.2 BRICS Pay .............................................................................................................. 19

6.4 Digital Currencies and Financial Innovation ................................................................. 20

7. Impact on Global Trade and Capital Markets ...................................................................... 20

7.1 Changes in Trade Settlement Structures ........................................................................ 20

7.2 Impact on Foreign Exchange Markets and Global Liquidity......................................... 21

7.3 Implications for International Borrowing and Lending ................................................. 22

8. The Rise of Alternative Reserve Currencies ........................................................................ 23

8.1 Growth of the Euro, Yuan, and Gold as Alternatives ..................................................... 23

8.2 Role of Central Bank Digital Currencies (CBDCs) ....................................................... 24

8.3 Prospects of a Multipolar Currency World .................................................................... 24

9. Challenges to De-dollarization ............................................................................................ 25

9.1 Global Trust and Liquidity of the Dollar ....................................................................... 25

9.2 Network Effects and Established Infrastructure ............................................................ 26

10. Case Studies ....................................................................................................................... 27

10.1 Russia's Pivot to the Yuan and Ruble Trade Deals....................................................... 27

10.2 China’s Belt and Road Initiative and Yuan Settlement ................................................ 29

10.3 Middle Eastern Shifts in Reserve Policy and Oil Pricing ............................................ 31

11. Implications for the United States ...................................................................................... 32

11.1 Dollar Demand, Interest Rates, and Inflation Risks..................................................... 32

11.2 Impact on U.S. Foreign Policy and Financial Dominance ........................................... 33

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 11.3 Potential Erosion of "Exorbitant Privilege" ................................................................. 34

12. Strategic Impact on Multinational Corporations (MNCs) ................................................. 35

12.1 Currency Risk Management in a De-dollarizing World .............................................. 35

12.2 Challenges in Trade Finance and Pricing Strategies .................................................... 36

12.3 Shift in Hedging and Financing Behavior ................................................................... 37

13. Future Outlook and Scenarios ............................................................................................ 37

13.1 Will De-dollarization Accelerate or Stall? ................................................................... 38

13.2 Could a Digital Currency Lead the Next Reserve Revolution? ................................... 38

13.3 Potential Models of a Multipolar Currency Order ....................................................... 39

14. Conclusion ......................................................................................................................... 40

14.1 Summary of Findings ................................................................................................... 40

14.2 Final Thoughts on Policy, Strategy, and Global Balance Shifts .................................. 41

References ................................................................................................................................ 42

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1. Introduction
De-dollarization is a fundamental shift in the global monetary structure that occurs when
countries and organizations reduce their reliance on the US dollar in international trade, foreign
exchange reserves, and financial transactions. This phenomenon includes efforts to shift away
from dollar-denominated assets, establish alternative payment systems, and promote the use of
local or regional currencies in bilateral and multilateral trade agreements.

The US dollar has maintained a record-breaking position of control in the global financial
system for over seven decades. According to recent estimates, the dollar is the primary currency
used for international trade in commodities such as gold, oil, and agricultural products,
accounting for around 85% of all foreign exchange transactions and 60% of global foreign
exchange reserves. The dollar is the world's main reserve currency, the standard measure of
payment for international transactions, and the preferred reserve of value for central banks
around the world, so its dominance goes beyond mere numbers.

However, this long-held monetary power is gradually being challenged. Geopolitical conflicts,
economic sanctions, technological advances in digital currencies, and the growth of alternative
economic blocs all contributed to the de-dollarization phenomenon. Countries are actively
looking for measures to reduce their reliance on dollar-based financial systems, motivated by
concerns about monetary sovereignty, protection from unilateral sanctions, and a desire to
create more balanced multipolar financial arrangements.

2. Origins of Dollar Dominance

The Bretton Woods Agreement of 1944, which established a new international monetary
system after WWII, laid the foundation for dollar dominance. According to this arrangement,
the US dollar became the global financial system's core currency, with other major currencies
fixedly linked to it. Because other countries had to use dollars in order to maintain their
currency pegs as well as do international trade, this system effectively positioned the United
States as the world's central banker.

The United States was given exceptional powers under the Bretton Woods system, such as the
power to print dollars that other countries voluntarily held as reserves in order to cover their
deficits. This arrangement, known as the "exorbitant privilege," allowed the United States to
continue running current account deficits while other countries collected dollar reserves to

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support their export-focused growth plan. Additionally, the system created the World Bank and
the International Monetary Fund, two American-dominated organizations that strengthened the
dollar-based financial system.

Although the Bretton Woods system collapsed in 1971 when President Nixon ended dollar-
gold convertibility, dollar dominance was revived by the petrodollar system, which was formed
in the mid-1970s. Following negotiations with Saudi Arabia and other Gulf states, the US
achieved an agreement requiring oil-producing countries to price petroleum completely in
dollars and reinvest their dollar revenues in US financial markets. This arrangement ensured
continuous global demand for dollars, as every country requires dollar reserves to purchase oil,
the most important commodity in the world economy.

The petrodollar system created a self-sustaining cycle of dollar demand that went far beyond
energy markets. Countries needed dollar reserves not only for oil purchases, but also for debt
servicing, as many developing countries borrowed significantly in dollar-denominated loans in
the 1970s and 1980s. International commodity markets have gradually adopted dollar pricing,
making the currency essential for global trade. The expansion of deep and liquid dollar
financial markets, particularly in US Treasury securities, provided foreign central banks with
safe and easily accessible investment options for their reserves.

2.1 Role of the Dollar in International Trade, Debt, and Reserves

Dollar dominance had a significant impact on global economic policy and development goals
during the late twentieth century. Countries pursuing export-led growth models needed to keep
their currency rates competitive against the dollar, which often required large reserve
accumulation and monetary policies aligned with US Federal Reserve decisions. Because the
dollar is the world's most widely used currency, changes in Federal Reserve interest rates affect
capital flows, exchange rates, and financial conditions over the world.

The network effects of dollar usage created strong incentives for wider adoption. As more
institutions, markets, and countries accepted the dollar, the currency became increasingly
essential in international trade. Banks developed sophisticated dollar-based payment systems,
traders established dollar-denominated contracts, and investors sought out dollar assets for
liquidity and security. This created barriers to the adoption of other currencies, as switching

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costs and coordination concerns made it difficult for individuals to move away from dollar-
based institutions.

The dollar dominance also allowed the US to show economic power through financial and
banking sanctions. Because of the importance of dollar-based foreign banking, the United
States was able to successfully remove countries and entities from the global financial system,
as proven by the sanctions regimes imposed on Iran, Russia, North Korea, and other nations. It
has transformed the dollar from a mere means of exchange to an instrument of global influence.

3. Recent Trends in De-Dollarization

3.1 Shift in Central Bank Reserve Compositions

For more than a century the U.S. dollar has enjoyed an advantage as the world’s top reserve
currency, held by central banks across the world to store value and conduct international
business. According to International Monetary Fund (IMF), the USD accounted for 57% of
allocated currency reserves as of the third quarter of 2024, significantly ahead of the euro at
20% and the Japanese yen at almost 6%. While it remains as the dominant currency, the dollar’s
share of allocated currency reserves has fallen over time, down from more than 70% in 2001.
This decrease can be attributed to countries increasing their gold reserve and reserve of other
currencies like Yen, British Pound, and Euro. China and Russia have been major initiators of
de-dollarization, aiming to position Renminbi (RMB) as a reserve currency. Although central
banks have increased their renminbi holdings, the currency’s share of global reserves remains
at just under 2.2% as of the third quarter of 2024.

3.2 Rise in Bilateral Trade Agreements Using Local Currencies

At the 2024 BRICS summit in Johannesburg, the leaders of Brazil, Russia, India, China, and
South Africa said they wanted to use more of their national currencies for cross-border
payments, which are currently dominated by the U.S. dollar and other global convertible
currencies. Like China and the other BRICS, several other countries have also sought to
develop alternative external payment mechanisms to avoid geopolitically motivated sanctions
and exchange rate vulnerability. Pairs of countries have agreed to settle commercial and
financial transactions with each other in their local currencies, usually facilitated through
bilateral agreements between their central banks.

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3.3 Reduction of Dollar-based Foreign Debt

A key strategy for nations to reduce their reliance on US dollar-denominated foreign debt is to
shift their borrowing away from the dollar and towards their own domestic currency. This is
primarily achieved by issuing new bonds and taking loans in local currency, which removes
the risk of a currency mismatch where a depreciating domestic currency makes foreign-
denominated debt more expensive to repay. To facilitate this, countries are actively working to
build deeper and more attractive domestic bond markets to encourage both local and
international investors to buy debt in their national currencies. Additionally, some nations are
utilizing bilateral agreements to secure loans in alternative currencies, such as the Chinese
Yuan, and are using their foreign exchange reserves to pay down existing dollar debt to reduce
their financial exposure and enhance their economic sovereignty.

3.4 Alternative Payment Systems

Financial institutions use SWIFT to securely transmit information and instructions through a
standardized code system. Although SWIFT is crucial to global financial infrastructure, it's not
a financial institution. SWIFT does not hold or transfer assets but facilitates secure, efficient
communication between member institutions. The likelihood of a new cross-border payment
system emerging as an alternative to Swift has increased significantly in recent years, driven
by the escalating geopolitical tensions and the imposition of international sanctions,
particularly on Russia and Iran. The recent removal of Russian banks from the SWIFT
messaging system has highlighted the importance of payments in supporting economies. But
the weaponization of SWIFT has driven banks and firms to other substitutes.

3.4.1 Cross-Border Interbank Payment System (CIPS)

The Cross-Border Interbank Payment System is an international payment system developed in

China to enables real or near real-time settlement of cross-border RMB payments. CIPS is
regulated by the Peoples Bank of China. It was developed in the year 2015 to encourage the
use of RMB in trade and transactions. As of May 2024, CIPS has over 1530 direct and indirect
participants, including banks and financial institutions in major cities and regions around the
world.

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Bangladesh is integrating with China's Cross-border Interbank Payment System (CIPS) as an
alternative to SWIFT for international transactions, particularly for clearing dues with Russia
for the Rooppur Powerplant and facilitating direct trade and investment with China.

3.4.2 System for Transfer of Financial Messages (SPFS)

The System for Transfer of Financial Messages (SPFS) is Russia's alternative to the SWIFT
international payment system. Developed by the Bank of Russia, SPFS allows domestic and
foreign financial institutions to exchange financial messages securely and reliably, especially
for transactions where SWIFT access is restricted or unavailable. While initially focused on
Russian banks, SPFS has seen increasing participation from foreign banks, particularly in
countries like China, Switzerland, Turkey, and Kazakhstan. The European Council has banned
the use of SPFS by EU banks outside Russia, and the US OFAC has issued warnings about
potential sanctions for institutions joining SPFS making global acceptance slower.

3.4.3 Instrument in Support of Trade Exchanges (INSTEX)

Instrument in Support of Trade Exchanges was created by Germany, France and Britain as a
euro-denominated clearing house for Iran to conduct trade with European companies. In effect,
INSTEX works as an alternative to SWIFT and US-dominated global financial system. Trade
focused on non-sanctionable essential goods such as humanitarian, medical and farm products.
It did not address oil-related transactions as a result INSTEX usage was very limited.

4. Economic and Financial Motivations of De-Dollarization

The push for de-dollarization is not solely a political or geopolitical move; it is underpinned by
strong economic and financial incentives for nations to reduce their reliance on the U.S. dollar.
These motivations address vulnerabilities and costs associated with the current dollar-centric
global financial system.

4.1 Reducing Transaction Costs and Promoting Bilateral Trade

When countries trade, they typically use a "vehicle currency" like the U.S. dollar, even if the
trade is between two non-U.S. nations. This requires two currency conversions (e.g., from Taka
to USD, then from USD to Yuan). Each conversion involves a transaction cost (the bid-ask
spread).

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Economic Benefit: By conducting trade in local currencies through bilateral agreements or
currency swap lines, these transaction costs can be eliminated. This makes trade more efficient,
faster, and cheaper for businesses, potentially boosting trade volumes between partner
countries. It also reduces the need for countries to hold large stockpiles of U.S. dollars just for
trade settlement.

4.2 Gaining Monetary Policy Independence

In a dollar-dominated world, a country's monetary policy can be heavily influenced by the U.S.
Federal Reserve's decisions. For example, when the Fed raises interest rates, it can trigger
capital outflows from emerging markets as investors shift to higher-yielding U.S. assets. To
prevent their currency from depreciating, these countries might feel compelled to raise their
own interest rates, even if it hurts their domestic economy (e.g., slowing growth, increasing
unemployment). Furthermore, when the U.S. Federal Reserve expands the dollar supply as part
of their monetary policy, it can cause US prices to rise, making US goods price uncompetitive
globally causing depreciation of USD.

Economic Benefit: Reducing reliance on the dollar in trade and finance gives a central bank
more autonomy to set its own interest rates based on domestic economic conditions (e.g.,
inflation and growth targets) rather than being dictated by external pressures. This allows for
more effective use of monetary policy to manage the local economy. In addition, by moving
away from the dollar, countries can better insulate their economies from U.S. monetary
policy decisions and their inflationary consequences. A diversified currency basket in trade
and reserves provides a buffer against this kind of external price shock.

4.3 Diversification of Foreign Reserves

Holding a large portion of foreign exchange reserves in U.S. dollar assets (like U.S. Treasury
bonds) ties a country's financial stability to the policies and stability of the U.S. financial
system. As seen with the freezing of Russia's reserves, these assets can be "weaponized" and
seized for political reasons.

Financial Benefit: Diversifying reserves into other currencies (Euro, Yuan, Yen) and alternative
assets like gold reduces a country's exposure to this geopolitical risk. It ensures that a nation's
financial assets remain under its control and are not vulnerable to unilateral actions by a foreign
government like the US government.

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5. Geopolitical Drivers

The global trend toward de-dollarization isn’t just about economic calculations, it is deeply
political. Geopolitical tensions, unilateral sanctions, and the fear of financial exclusion have
pushed countries to reconsider their dependence on the U.S. dollar. The use of the dollar as a
tool for economic coercion has particularly intensified after 2022, giving rise to strategic
responses by affected and observing nations alike.

5.1 Weaponization of the Dollar Through Sanctions

5.1.1 Historical Context and Modern Usage

Since the Cold War era, the United States has employed economic sanctions as a core tool of
foreign policy, targeting adversaries like the Soviet Union, North Korea, and Cuba. However,
the modern application of these sanctions has grown in sophistication and scope. In recent
decades, particularly post-9/11, the U.S. has gained even greater control over the global
financial system through institutions like SWIFT, CHIPS, and U.S.-based correspondent
banking systems.

This control became especially visible after the 2022 Russia-Ukraine war, when the U.S. and
its allies froze over $300 billion of Russia’s foreign exchange reserves, mostly held in U.S.
dollars and euros (Geopolitical Monitor, 2023). More than 30 active U.S. sanctions programs
now influence trillions of dollars in global transactions, targeting not just state actors but also
individual banks, corporations, and in some cases, entire industries (China-US Focus, 2024).

5.1.2 Impacts and Backlash

The immediate impact of these sanctions was massive. Russian banks were disconnected from
global financial arteries, causing major disruptions in trade, especially energy exports, and
creating liquidity shortages in domestic markets (Investopedia, 2023).

However, the broader consequence was more profound: trust erosion. Nations across the
political spectrum, including U.S. allies, began questioning the safety of storing their reserves
in U.S. or euro-denominated assets. The idea that a country’s entire financial system could be
frozen overnight alarmed many. European policymakers warned of over-reliance on U.S.-led
systems, sparking debates around financial sovereignty.

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To address this vulnerability, the European Union even launched alternative payment
mechanisms like INSTEX (Instrument in Support of Trade Exchanges) to enable trade with
sanctioned countries like Iran while avoiding U.S. financial surveillance (Modern Diplomacy,
2023).

5.2 Strategic Alliances: Russia & China’s Financial Pivot

5.2.1 Accelerating Currency Partnerships

In the wake of economic sanctions, Russia and China deepened their financial cooperation to
shield themselves from Western pressure. By late 2022, over 90% of Russia-China trade was
settled in ruble and yuan, effectively bypassing the U.S. dollar (Financial Times, 2023). This
was not a minor adjustment; it signaled a major geopolitical shift in trade finance.

In parallel, Russian banks increased their holdings of yuan and opened new forex accounts in
Chinese currency. Reports indicate that by March 2022, 1 in 3 new Russian forex accounts
were denominated in yuan. China’s UnionPay system also expanded in Russia as a
replacement for Visa and Mastercard, which had suspended operations.

Energy deals between the two nations, including the Power of Siberia 2 pipeline, are
increasingly being denominated in local currencies, particularly the yuan, further reducing
dependence on SWIFT and Western currency networks (Reuters, 2023).

5.3 Sanctions on Third-Party Facilitators

The scope of sanctions has evolved to include not only primary targets like Russia but also
third-party enablers. In early 2024, the European Union sanctioned two smaller Chinese banks
for facilitating Russian transactions using cryptocurrencies (Le Monde, 2024). This marked a
notable expansion in how economic pressure is being applied, penalizing even those who act
indirectly.

This move reflects the rising urgency among Western powers to contain the spread of
alternative financial systems, but it also risks further alienating neutral countries and driving
them toward BRICS-led alternatives. For many observers, it sends a message: participation in
U.S.-dominated finance carries political baggage and vulnerability.

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5.4 Erosion of the Dollar’s Safe-Haven Image

5.4.1 Markets Push Back

Traditionally, the dollar has been considered a "safe haven", a currency investors rush to
during global turmoil. However, recent events are challenging this status. During the June 2025
Israel-Iran tensions, the dollar index rose by a modest 0.25%, while gold surged 1.5%, an
unusual reversal in safe-haven behavior (Reuters, 2025).

This tepid performance is part of a broader trend. As of mid-2025, the dollar stood at a 3.5-
year low, signaling weakened investor confidence, especially as U.S. debt and geopolitical
involvement grow.

5.5 Strategic Diversification by Other Nations

In anticipation of geopolitical shocks, countries are proactively diversifying their reserve

portfolios. A 2024 survey by the World Gold Council revealed that 95% of central banks plan
to increase their gold holdings, citing concerns over reserve safety and the risk of dollar
exposure. Many also believe that the share of U.S. dollar reserves will decline within the next
five years (The Day Spring, 2024).

Countries like India and Nigeria have even begun repatriating gold held in Western vaults to
domestic reserves. This move emphasizes the growing sentiment that assets held in Western
jurisdictions may no longer be politically neutral (Financial Times, 2024).

Initiatives like Project mBridge, involving central banks from China, Thailand, Hong Kong,
and the UAE, show that shared digital infrastructure can lower transaction costs while allowing
for sovereign control over monetary policies. These systems reduce dollar-based
intermediation and provide smaller economies more autonomy in international finance.

5.5.1 Trump-Era Warnings and Pushbacks

With Donald Trump’s return to the U.S. presidency in January 2025, de-dollarization efforts
have gained new momentum. In early 2025, Trump threatened 100% tariffs on BRICS+
countries if they proceed with launching a common currency or anti-dollar payment systems
(Reuters, 2025). Instead of deterring them, his aggressive stance has strengthened BRICS’
resolve, portraying the dollar as a tool of political control.

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Gulf states like Saudi Arabia and the UAE have also expanded non-dollar trade deals,
seeking more autonomy.

5.5.2 European Discontent

European leaders have increasingly voiced disillusionment with their secondary role in dollar-
dominated geopolitics. French President Emmanuel Macron famously criticized Europe’s
subservience to U.S. interests, calling them “American vassals” and advocating for an
autonomous European financial architecture (Modern Diplomacy, 2023). EU leaders,
particularly French President Macron, renewed calls for euro-based trade systems and a
European alternative to SWIFT.

The geopolitical drivers behind de-dollarization are rapidly fragmenting what was once a
monocentric financial system. Today’s landscape is shifting toward multiple currency blocs,
where regional powers conduct trade and build financial infrastructure independent of the
dollar.

6. The Role of BRICS and Regional Alliances

In the evolving landscape of global finance, the BRICS bloc, originally comprising Brazil,
Russia, India, China, and South Africa, has emerged as a major force challenging the unipolar
dominance of the U.S. dollar. The bloc’s de-dollarization strategies are broad-based: they range
from promoting trade in local currencies to developing alternative payment infrastructure and
fostering regional financial resilience through coordinated policy frameworks.

6.1 Expanding and Cohesive Economic Bloc

BRICS+ now accounts for approximately 35–36% of global GDP (Purchasing Power Parity)
and over 45% of the world’s population, giving it both economic and geopolitical heft that
surpasses the traditional G7 alliance. With the expansion to include strategic countries like
Iran, Egypt, Ethiopia, Indonesia and the UAE, the bloc has strengthened its political and
trade influence across Asia, Africa, and the Middle East.

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6.2 Local-Currency Trade and Currency Swap Agreements

A core component of the BRICS strategy to erode dollar dominance lies in the promotion of
local currency trade. This effort has gathered pace in the wake of U.S. sanctions against
countries like Russia and Iran, which emphasizes the geopolitical risks of dollar dependency.

Russia and China have conducted the majority of their bilateral trade in ruble and yuan,
reaching over 90% in recent years.

India and Russia have also increased rupee-ruble trade, particularly for defense and energy
deals.

Brazil and China signed an agreement to settle trade in yuan and real, thereby bypassing the
need for U.S. dollar conversions.

In addition, the New Development Bank (NDB), also known as the “BRICS Bank”, has taken
active steps to reduce reliance on the dollar by issuing over $20 billion in local currency loans.
This move provides member countries with access to funding without being exposed to the
risks of dollar volatility or U.S. financial sanctions.

Complementing this is the Contingent Reserve Arrangement (CRA), a pooled reserve of

$100 billion designed to offer liquidity support to member states in times of balance of
payments difficulties. Uniquely, the CRA encourages the use of local currencies, giving it an
added advantage in promoting financial independence from the dollar.

6.3 Building Non-Dollar Trading Infrastructure

One of the most profound steps toward de-dollarization has been the creation and expansion of
alternative financial messaging and payment systems. These platforms aim to replace or
supplement SWIFT, the globally dominant but Western-controlled system.

6.3.1 Gulf Nations Exploring Non-Dollar Oil Trade

One of the most significant and symbolic developments in the global de-dollarization
movement is the interest shown by Gulf nations, especially Saudi Arabia and the United Arab
Emirates (UAE), in moving away from using the U.S. dollar for oil trade. For decades, oil has
almost exclusively been sold in dollars, a system often referred to as the "petrodollar regime",

18
which gave the U.S. enormous financial and geopolitical power. However, recent shifts in
global politics and economic alliances are challenging that system.

In 2023, Saudi Arabia entered talks with China about the possibility of settling oil trades in
Chinese yuan (renminbi). While not all oil exports have shifted away from the dollar yet, this
move sent a powerful message to global markets: even the world’s largest oil exporter is
rethinking its reliance on the dollar. Saudi officials have openly stated that they are "open to
trading in different currencies", depending on the partner country and the broader
geopolitical context. This willingness reflects the kingdom’s growing ties with China and its
increasing involvement with BRICS+ initiatives.

At the same time, the UAE and India completed a landmark oil deal in 2024 using their
respective local currencies, the UAE dirham and Indian rupee, completely bypassing the
U.S. dollar. This was one of the first officially confirmed non-dollar oil transactions between
two major economies and highlighted a growing trend of energy partnerships based on mutual
currency agreements.

These developments are not just about saving on conversion fees or avoiding U.S. oversight,
they represent a strategic shift. By settling oil in non-dollar currencies, Gulf nations reduce
their dependence on U.S. financial systems and gain more flexibility in how they manage
reserves, payments, and partnerships. It also gives countries like China and India the ability to
buy energy without holding large dollar reserves, which supports their broader push for
financial sovereignty.

6.3.2 BRICS Pay

One of the most ambitious efforts by BRICS is BRICS Pay, a decentralized, blockchain-based
payment messaging system that was formalized during the 2024 BRICS Summit in Kazan.
Designed to link national payment networks (like China’s UnionPay and India’s RuPay),
BRICS Pay allows retail and cross-border transactions in local currencies. This reduces
settlement time, avoids intermediary fees, and circumvents the dollar-based financial
infrastructure.

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6.4 Digital Currencies and Financial Innovation

BRICS countries are also pushing the envelope in the digital realm. Several member states have
either piloted or launched Central Bank Digital Currencies (CBDCs), such as China’s
digital yuan (e-CNY) and India’s digital rupee. These CBDCs not only modernize domestic
payment systems but are also being designed for interoperability across borders.

Discussions are ongoing around developing a BRICS-linked digital currency or token

(sometimes referred to as the “R5”, named after the first letters of each original BRICS
member). Although the R5 remains a conceptual idea for now, proposals suggest it could be
backed by a basket of national currencies or even commodities like gold. If successful, it would
represent a radical shift in global finance, creating a stable, politically neutral alternative to the
dollar.

While BRICS is still far from dethroning the U.S. dollar, its growing financial infrastructure
and political cohesion are laying the foundation for a multipolar currency order. Over the next
5–10 years, local-currency trade within the BRICS+ network is expected to rise significantly,
while the role of U.S. dollar reserves could shrink as more countries hedge against geopolitical
risks.

7. Impact on Global Trade and Capital Markets

7.1 Changes in Trade Settlement Structures

The global trade settlement landscape is undergoing a notable transformation as several

countries pursue de-dollarization strategies. One of the key developments has been the
increased use of local currencies in bilateral and regional trade agreements. Initiatives such as
the Pan-African Payment and Settlement System (PAPSS) have enabled African nations to
conduct cross-border trade in local currencies, significantly reducing transaction costs.
According to Reuters, this system could save the continent up to five billion dollars annually
by eliminating reliance on intermediary currencies like the US dollar.

Additionally, bilateral currency swap arrangements have gained prominence. Countries such
as China, India, Turkey, and Qatar have signed agreements allowing them to settle trade
transactions in their domestic currencies. These arrangements bypass the dollar and reduce
exposure to foreign exchange fluctuations.

20
Parallel to these developments, alternative payment systems have been introduced to support
non-dollar settlements. China's Cross-Border Interbank Payment System (CIPS), Russia's
System for Transfer of Financial Messages (SPFS), and the European Union’s INSTEX
mechanism are notable examples. These systems provide infrastructure for countries seeking
to circumvent the dollar-dominated SWIFT network and mitigate the risks associated with U.S.
financial sanctions.

As a result of these shifts, trade invoicing practices are becoming increasingly diversified.
While the dollar continues to play a central role, its dominance in trade settlement is declining
in several bilateral and regional trade corridors.

7.2 Impact on Foreign Exchange Markets and Global Liquidity

The trend toward de-dollarization is also influencing global foreign exchange (FX) markets
and liquidity dynamics. As more countries settle trade and hold reserves in alternative
currencies such as the euro and yuan, the overall liquidity of the dollar may be affected.
Although the dollar remains the most liquid and widely traded currency, reduced reliance on it
in trade and reserves could lead to greater fragmentation in global liquidity.

This shift has implications for currency volatility. A move away from a single dominant
currency increases cross-currency exchange rate fluctuations, particularly in emerging markets
where alternative currency markets may lack depth and resilience. For example, transactions
settled in less-liquid currencies are more susceptible to pricing inefficiencies and abrupt
valuation shifts.

Moreover, central bank reserve compositions are changing. Data from the International
Monetary Fund (IMF) indicates that the share of U.S. dollar holdings in global foreign
exchange reserves has steadily declined from approximately 71 percent in 1999 to around 59
percent in 2021. This diversification into other currencies and assets, including gold, has
implications for global liquidity, especially during periods of financial stress when demand for
safe and liquid assets typically rises.

21
 USD share in global allocated FX reserves
80%
70%
60%
50%
40%
30%
20%
10%
0%
1999 2010 2021 2024

USD Share

7.3 Implications for International Borrowing and Lending

De-dollarization also carries significant consequences for international borrowing and lending
practices. As the demand for U.S. dollar assets declines, the United States may face higher
borrowing costs due to reduced appetite for U.S. Treasury securities. The dollar’s status as the
world’s primary reserve currency has historically enabled the U.S. to borrow at relatively low
interest rates. A shift in global reserve preferences could erode this advantage.

For emerging and developing economies, de-dollarization offers both challenges and
opportunities. Many of these countries have historically issued debt in U.S. dollars, exposing
them to currency mismatch and exchange rate risks. A transition toward local currency
borrowing, or borrowing through regional mechanisms backed by local currencies, could
reduce such vulnerabilities. However, local currency debt markets often lack the depth, investor
base, and institutional framework that dollar-denominated markets offer, which could lead to
higher borrowing costs in the short term.

Furthermore, the development of regional financing arrangements and alternative reserve

assets may help build more resilient capital markets. Institutions such as the New Development
Bank (established by BRICS) have begun to issue bonds in local currencies, supporting efforts
to reduce dependence on the dollar and enhance regional financial autonomy.

Overall, the movement away from the U.S. dollar is reshaping the structure of global trade,
foreign exchange markets, and capital flows. While the transition remains gradual and uneven,

22
its long-term implications could be significant for international economic governance and
financial stability.

8. The Rise of Alternative Reserve Currencies

8.1 Growth of the Euro, Yuan, and Gold as Alternatives

In response to ongoing geopolitical volatility and concerns over U.S. financial dominance,
many central banks are diversifying their reserve holdings into non-dollar assets. According to
a recent Official Monetary and Financial Institutions Forum (OMFIF) report, approximately
40% of central banks intend to increase their gold holdings over the next decade—the highest
proportion in five years. Concurrently, the euro has become the most preferred currency for
reserve expansion, with a net 16% of institutions planning to raise euro allocations, closely
followed by the Chinese renminbi (yuan). By 2035, projections suggest the euro could regain
between 22% and 25% of global reserves, while the yuan's share may triple to approximately
6%. Nonetheless, forecasts maintain that the U.S. dollar will retain a majority share of about
52% by then.

Demand for gold among global reserve managers has also surged. Uncertainty surrounding
dollar-based assets has driven a significant increase in gold holdings. Notably, gold surpassing
the euro in total value held as reserves reflects its appeal as a safe-haven asset.

Current vs Projected Global Composition of FX Reserve

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
USD EUR CNY Other

Current Projected

23
8.2 Role of Central Bank Digital Currencies (CBDCs)

Central banks worldwide have accelerated research and development of CBDCs in part to
reinforce monetary sovereignty amid currency diversification pressures. A 2021 BIS survey
indicates that over 85% of central banks are actively exploring, piloting, or implementing
digital currencies.

Recent developments highlight accelerated progress:

• The People’s Bank of China (PBOC) is promoting the international use of its digital
yuan (e-CNY). At the Lujiazui Forum, PBOC Governor Pan Gongsheng confirmed
efforts to expand e-CNY use and integrate with the Cross-Border Interbank Payment
System (CIPS) to promote a multipolar currency framework.

• The European Central Bank has entered the preparation phase for a digital euro as of
October 2023. The digital euro is intended to uphold monetary sovereignty and provide
a euro-denominated digital payment foundation alongside physical currency.

• In contrast, the United States has temporarily halted progress on a digital dollar,
following policy pushback. Nonetheless, experts suggest that a “w-CBDC” or
wholesale digital dollar could reinforce U.S. global financial influence.

These developments indicate that CBDCs are viewed as strategic monetary tools—not merely
digital innovations. Their deployment has the potential to shape reserve currency dynamics,
cross-border payment efficiency, and international financial architecture.

8.3 Prospects of a Multipolar Currency World

The diversification of reserve assets and the digitalization of sovereign currencies are gradually
fostering a more multipolar currency environment. While the U.S. dollar retains a dominant
share, projections for 2035 suggest reduced concentration: approximately 52% in dollars, 22–
25% in euros, 6% in yuan, and a rising allocation to gold. The adoption of CBDCs by leading
economic powers introduces the possibility of efficient, interoperable payment systems outside
the dollar-centric SWIFT landscape.

However, several obstacles remain:

24
 • The eurozone faces structural constraints, including incomplete fiscal integration and
periodic sovereign debt fragmentation, which limit the euro's capacity to rival the dollar
fully.

• The yuan’s path to reserve prominence is inhibited by capital controls, restricted

offshore convertibility, and the relative immaturity of Chinese financial markets.

• Successful CBDC adoption depends on overcoming technical, regulatory, and privacy

challenges, and establishing interoperable frameworks at scale.

In sum, the movement toward a multipolar currency system is gaining traction, but the
transition remains gradual. The enduring dominance of the dollar, combined with
infrastructural and institutional barriers faced by alternative currencies, will likely ensure that
any shift to a new currency order remains evolutionary rather than revolutionary.

9. Challenges to De-dollarization

Despite growing interest in reducing reliance on the U.S. dollar in international trade and
reserves, several structural and systemic factors continue to reinforce the dollar's dominance.
These include the deep trust in the dollar’s stability and liquidity, the extensive network effects
of dollar-based financial systems, and the lack of viable alternative currencies with comparable
market depth and institutional robustness.

9.1 Global Trust and Liquidity of the Dollar

A primary factor sustaining the dollar’s centrality in the global financial system is the high
level of trust in U.S. financial institutions and the unmatched liquidity of dollar-denominated
assets. The U.S. Treasury market is the world’s most liquid and secure bond market, offering
unparalleled depth and safety. During times of geopolitical or financial uncertainty, global
investors consistently seek refuge in U.S. assets, reinforcing the dollar’s role as a safe-haven
currency (Goldman Sachs, 2025).

According to the Bank for International Settlements (BIS), as of 2022, nearly 88% of all foreign
exchange transactions involved the U.S. dollar (BIS, 2022). This overwhelming presence
ensures high liquidity, which lowers transaction costs and enhances capital mobility. The
dollar's wide acceptance is also underpinned by the relative stability of U.S. institutions and

25
the credibility of the Federal Reserve, which gives global actors confidence in holding and
transacting in the currency (MarketWatch, 2025).

Moreover, the dollar's position is reinforced by the United States’ dominant role in global
economic output, capital markets, and military strength. These interrelated factors produce a
reinforcing cycle of confidence and usage that is difficult to displace.

9.2 Network Effects and Established Infrastructure

Another significant barrier to de-dollarization is the strong network effect created by decades
of dollar-based financial architecture. The global dominance of the Society for Worldwide
Interbank Financial Telecommunication (SWIFT) and the U.S.-centric correspondent banking
system means that most international trade and finance infrastructure is built around the dollar.
These institutional arrangements reduce friction for dollar-based transactions and increase the
switching costs for alternatives (Goldman Sachs, 2025; Deutsche Bank, 2025).

Dollar-denominated financial instruments and pricing conventions are embedded throughout

international trade contracts, commodity markets, and cross-border investment. For example,
key commodities such as crude oil, gold, and agricultural products are almost universally priced
in U.S. dollars. According to the U.S. Energy Information Administration, over 80% of global
oil transactions are still conducted in dollars, reinforcing its dominance in physical trade (EIA,
2024).

Efforts by countries such as China and Russia to establish parallel systems—such as CIPS and
SPFS—have made progress but remain limited in scale and global reach. These systems lack
the user base, technical maturity, and global trust necessary to serve as complete substitutes for
the existing infrastructure (Reuters, 2025).

While currencies such as the euro and yuan are gaining ground, they face structural and
institutional limitations that restrict their ability to fully displace the dollar. The eurozone, for
instance, suffers from fragmented fiscal policy and periodic sovereign debt crises that
undermine confidence in its long-term stability. Moreover, the euro lacks a unified capital
market comparable in scale and liquidity to that of the United States (European Central Bank,
2021).

26
China’s renminbi, though increasingly used in trade settlements and swap agreements, is
constrained by capital controls, a non-transparent regulatory environment, and limited
convertibility. Despite efforts to internationalize the currency and promote the e-CNY, the
renminbi accounts for only about 2.5% of global reserve holdings and around 4% of SWIFT
transactions as of 2024 (IMF COFER, 2024; SWIFT, 2024).

In addition, alternative assets such as gold, while historically trusted, do not offer the yield,
convenience, or flexibility required for modern financial operations. Gold reserves are illiquid
in comparison to sovereign debt instruments and are vulnerable to valuation volatility.

Ultimately, the lack of a single alternative currency that offers both global liquidity and
institutional reliability ensures that the U.S. dollar remains the preferred choice for trade,
reserves, and investment. Most analysts agree that any shift away from dollar centrality will be
gradual and partial rather than sudden or comprehensive (Deutsche Bank, 2025; BIS, 2022).

10. Case Studies

The global de-dollarization trend is significantly illustrated through various regional and
national case studies, revealing distinct strategies and motivations driving the shift away from
the US dollar's dominance. These cases collectively demonstrate a move towards a multipolar
financial system, driven by geopolitical, economic, and strategic factors.

10.1 Russia's Pivot to the Yuan and Ruble Trade Deals

Following its military actions in Ukraine in 2022, Russia faced unprecedented economic
restrictions, including disconnection from the SWIFT network and the freezing of over $300
billion of its foreign exchange reserves, primarily held in US dollars and euros. These actions
weaponized the US financial system in a way previously unseen against a G20 economy,
exposing vulnerabilities for Russia and prompting an accelerated de-dollarization strategy.

Russia's response has been a top-down driven "rouble-ization" and a pivot towards Asian
partners, particularly China and India.

• Shift in Reserve Composition: The Central Bank of Russia (CBR) dramatically cut its
dollar holdings from 43% in 2014 to 16.4% in 2021. Concurrently, the share of the
Chinese Yuan (Renminbi) in Russia's reserves jumped from zero in 2014 to 13% in

27
 2021, making Russia the largest holder of the Chinese currency globally before the
2022 crisis.

Figure: Russia’s Reserve Composition - 2014

Figure: Russia’s Reserve Composition - 2022

Gold holdings also more than tripled, reaching over 20% of the value. This
demonstrated a conscious decision to prioritize security and geopolitical considerations
over traditional liquidity and credibility metrics.

• Bilateral Trade Settlements: There has been a significant move towards settling trade
in national currencies. By late 2022, over 90% of Russia-China trade was settled in
rubles and yuan, effectively bypassing the US dollar. For instance, in 2021, only 1%
of Russian exports to China were settled in yuan, but this figure soared to 18% by the
end of 2022. On the import side, yuan usage rose from 5% in 2021 to 27% in 2022.

28
 Similarly, more than 55% of trade with India now occurs without the US dollar,
primarily using rubles and rupees for vital imports like oil and defense equipment.
Russia has also sought to link India's Unified Payments Interface with Mir cards for
seamless transactions.

• Alternative Financial Infrastructure: Russia has actively developed its own payment
processing capabilities to move away from the dollar-centered financial infrastructure.
This includes the National Payment Card System "Mir" (an alternative to Visa and
Mastercard) and the System for Transfer of Financial Messages (SPFS) as a SWIFT
alternative. While domestic adoption of Mir cards is high due to state mandates, global
acceptance of SPFS has been slower, though it has seen increasing participation from
foreign banks in countries like China, Switzerland, Turkey, and Kazakhstan. The
European Council has banned the use of SPFS by EU banks outside Russia, and the US
OFAC has issued warnings about potential sanctions for institutions joining SPFS.

• Future Plans: Russia is also exploring more innovative approaches, such as creating
clearing platforms for cross-border settlements in stablecoins tied to gold, and
President Putin has explicitly endorsed the development of a BRICS reserve currency
based on a currency basket. This aggressive shift, while coming at a cost due to the
lower liquidity and volatility of non-Western currencies, is a strategic imperative to
insulate Russia's economy from Western oversight and sanctions.

10.2 China’s Belt and Road Initiative and Yuan Settlement

China is a central driver of de-dollarization, particularly through its Belt and Road Initiative
(BRI) and its efforts to internationalize the Yuan (Renminbi). Originally, the BRI, launched in
2013, aimed to expel US dollars from the Chinese economy and limit the need for market
interventions, facilitating substantial demand for the Yuan. However, a speculative attack in
2015-2016 led China to tighten capital controls, shifting its strategy from a "full-blown de-
dollarization" to a more measured approach of hedging against US sanctions.

• Trade-Focused Internationalization: China now primarily focuses on promoting the

Yuan through cross-border trade settlements, rather than fully opening its capital
markets. This involves bilateral agreements where trade is settled in local currencies,

29
 bypassing the US dollar. For example, an Argentinian exporter might be paid in pesos,
and a Chinese exporter to Argentina in Yuan, with trade settling through local products.

• Reduced Reliance on US Dollar Reserves: While China has historically accumulated

massive US dollar reserves, peaking at nearly $4 trillion in 2014, its interest in
expanding these reserves has waned. By January 2023, China's holdings of US bonds
had fallen to $860 billion, a 14-year low. This reflects a deliberate strategy to reduce
exposure to the US dollar and its potential weaponization.

• Alternative Payment Systems: China has developed the Cross-Border Interbank

Payment System (CIPS) since 2015 to encourage the use of RMB in trade and
transactions, enabling real or near real-time settlement of cross-border RMB payments.
CIPS had over 1530 direct and indirect participants by May 2024, demonstrating its
growing reach. Bangladesh, for instance, is integrating with CIPS as an alternative to
SWIFT, particularly for settling dues with Russia and facilitating direct trade with
China.

• Digital Currency Initiatives: China is also a leader in Central Bank Digital Currencies
(CBDCs), having piloted its digital Yuan (e-CNY). These CBDCs are designed for
interoperability across borders, exemplified by the Project mBridge (m-CBDC
Bridge project), which connects central and commercial banks across China, Hong
Kong, Thailand, the UAE, and Saudi Arabia, facilitating transactions without relying
on the US dollar or Western correspondent banks. This project is seen as a "masterclass
in plumbing" that enables real-time, peer-to-peer, cross-border foreign exchange
transactions using CBDCs.

• Diplomatic Engagement: China has utilized its economic diplomacy to foster de-
dollarization. Its mediation in Saudi-Iran peace talks and the scale of the Belt and Road
Initiative have led to an increasing recognition of the Yuan's growing dominance.
President Xi Jinping's visits, such as to Saudi Arabia in 2022, underscore China's push
for a "new paradigm" of energy cooperation with Gulf states, explicitly utilizing the
Shanghai Petroleum and Natural Gas Exchange for RMB settlement in oil and gas
trade, marking the "dawn of the Petro yuan".

30
10.3 Middle Eastern Shifts in Reserve Policy and Oil Pricing

The Middle East, particularly Saudi Arabia and the United Arab Emirates (UAE), is at the
forefront of challenging the US dollar's hegemonic role in the global economy and is actively
exploring non-dollar oil trade. This shift is highly significant, as the petrodollar system,
established in the 1970s, has been a cornerstone of dollar dominance, requiring oil-producing
countries to price petroleum entirely in dollars and reinvest revenues in US financial markets.

• Diversification of Reserves: Middle Eastern states have begun to reduce their reliance
on US debt. Saudi Arabia, for example, sold $62 billion worth of US debt since 2020,
a cumulative sell-off of 35%. This move was partly influenced by the US enforcing the
NOPEC Act, which Saudi Arabia cited as a reason for considering alternatives to the
US dollar in oil dealings. The Bank of Israel has also started diversifying its foreign
exchange holdings.

• Non-Dollar Oil Trade Agreements:

o In 2023, Saudi Arabia entered talks with China about settling oil trades in
Chinese Yuan. Saudi officials have openly stated their willingness to trade in
"different currencies" depending on the partner country and geopolitical
context.

o The UAE and India completed a landmark oil deal in 2024 using their
respective local currencies, the UAE dirham and Indian rupee, completely
bypassing the US dollar. This marked one of the first officially confirmed non-
dollar oil transactions between major economies, highlighting a growing trend
of energy partnerships based on mutual currency agreements.

o Since summer 2022, Russia has accepted dirhams as payment for its energy
exports, and since February 2023, Indian importers have been paying Russian
energy suppliers in dirhams.

• Strategic Reorientation: This move by Gulf nations is not merely about saving on
conversion fees but represents a strategic shift to reduce dependence on US financial
systems and gain more flexibility in managing reserves, payments, and partnerships.
China’s offer to Gulf states is particularly tempting as it does not insist on investing

31
 Yuan into Chinese government bonds; instead, it allows conversion into gold, giving
the Gulf states more options. China and Gulf nations are also deepening cooperation on
currency swaps and exploring the use of the m-CBDC Bridge project.

• Challenging US Influence: The growing intimacy between Saudi Arabia and China,
evident in increased Chinese investments and oil imports, coupled with Saudi
dissatisfaction with US Middle East policy, suggests a fundamental change in the
structure of international oil trade. The inclusion of Saudi Arabia and the UAE in the
expanded BRICS group further underlines this strategic reorientation, challenging the
long-standing petrodollar system.

11. Implications for the United States

The de-dollarization process carries significant and potentially dire implications for the United
States, impacting its economic stability, foreign policy, and long-held financial dominance.

11.1 Dollar Demand, Interest Rates, and Inflation Risks

The dominance of the US dollar provides the United States with "exorbitant privilege,"
allowing it to run large trade and budget deficits without significant economic repercussions,
as other countries continually demand dollars for reserves and international trade. This demand
for dollars supports the US bond market, keeping interest rates lower than they might otherwise
be.

• Impact of Reduced Demand: If de-dollarization efforts succeed in significantly

reducing global demand for the US dollar, several economic consequences could arise
for the US:

o Higher Borrowing Costs: A dwindling recycling of dollar surpluses into US

Treasuries, due to less trade being invoiced in dollars, could lead to a fall in
demand for US debt. This would likely result in upward pressure on real
yields and borrowing costs for the US government and businesses, making it
more difficult and expensive to access capital.

o Inflationary Pressure: A weakening dollar, resulting from reduced demand,

could create inflationary pressure in the US by raising the cost of imported

32
 goods and services. While some estimates suggest these effects might be
relatively small, the Federal Reserve's "unlimited quantitative easing" program
post-COVID-19, which flooded the US dollar with liquidity, already raised
concerns about passing costs onto other nations.

o Drain on Financial Assets: De-dollarization would likely lead to a broad

depreciation and underperformance of US financial assets, including the
stock market, as investors might divest or reallocate away from US markets due
to a loss of confidence.

• Monetary Policy Autonomy: Currently, the US Federal Reserve's monetary policy

decisions directly influence global monetary cycles, affecting capital flows, exchange
rates, and financial conditions worldwide. As other nations seek greater monetary
policy independence by reducing dollar reliance, the Fed's ability to direct global
financial flows and syphon off wealth into the American market could diminish.

11.2 Impact on U.S. Foreign Policy and Financial Dominance

The US dollar's dominance is a pillar of US global hegemony, providing a unique level of

visibility and leverage for enacting foreign policy measures, particularly financial sanctions.
The ability to restrict access to the American financial system or the usage of the dollar in
international trade has been a powerful tool.

• Weaponization of Finance and Trust Erosion: The disproportionate use of financial

penalties, exemplified by the freezing of Russian foreign exchange reserves and
disconnection from SWIFT, has seriously damaged the dollar's credibility and is a
primary cause of de-dollarization. This has instilled a fear among nations, even US
allies, that their assets could be "weaponized" and seized, leading to a widespread
erosion of trust in the dollar as a "safe asset".

• Reduced Leverage for Sanctions: As countries develop alternative payment systems

(like CIPS, SPFS, INSTEX) and increase bilateral trade in local currencies, the
effectiveness of US financial sanctions could diminish. The movement towards
financial independence means that restricting access to the US payments system or
dollar transactions would have less impact, thus weakening the US's ability to project
power through economic coercion.

33
 • Shifting Global Power Dynamics: The ongoing de-dollarization, particularly driven
by rising powers like China and Russia, is perceived as a challenge to perceived US
hegemony and a demand for a new global order. The shift towards a multipolar world
order, where currency use is increasingly determined by geopolitical alignments rather
than solely economic considerations, directly threatens the US's dominating position in
the monetary organization and world politics. This implies a decline in US influence
in the international monetary system.

• Diplomatic Vacuum: China's increasing diplomatic engagement, such as mediating

peace talks in the Middle East, suggests a growing ability to fill diplomatic vacuums
and reshape regional power balances, potentially sidelining traditional US influence.

11.3 Potential Erosion of "Exorbitant Privilege"

The term "exorbitant privilege," coined by former French Finance Minister Valéry Giscard
d'Estaing in the 1960s, refers to the unique advantages the US gains from its currency serving
as the world's primary reserve currency. These advantages include:

• Lower Borrowing Costs: The constant global demand for dollars allows the US
government to borrow at lower interest rates.

• Reduced Exchange Rate Risk: US businesses and individuals face minimal exchange
rate risk in international transactions.

• Financial Flexibility: The US can run larger deficits without triggering severe currency
crises or inflation.

The de-dollarization trend directly challenges this "exorbitant privilege".

• Diminished Demand for US Debt: If countries reduce their dollar reserves and
increasingly settle trade in other currencies, the demand for US Treasuries will dwindle,
impacting the US's ability to finance its deficits easily.

• Increased Vulnerability: The US economy, which has long depended on the dollar's
reserve status to support large government spending and trade deficits, would lose this
flexibility. This could expose the US to greater financial market volatility and pressure
on its domestic economy.

34
 • Loss of Economic Benefits: The immense economic benefits derived from dollar
dominance, such as seigniorage (the profit from issuing currency), would likely erode.

While the US dollar remains the most influential currency globally, and a complete replacement
is not imminent, the cumulative impact of de-dollarization efforts by various nations suggests
a gradual erosion of this privilege and a shift towards a multipolar currency world. This
ongoing process presents significant challenges to the traditional pillars of American
dominance.

12. Strategic Impact on Multinational Corporations (MNCs)

As the global economy gradually shifts away from the dominance of the US dollar,
multinational corporations (MNCs) are encountering new risks and strategic constraints across
their treasury, trade, and investment operations. This section analyzes three major areas of
disruption facing MNCs in a de-dollarizing world: currency risk management, evolving trade
finance and pricing models, and shifts in hedging and financing behavior.

12.1 Currency Risk Management in a De-dollarizing World

The central challenge for MNCs in the current environment lies in managing exposure to
volatile currencies amid restricted capital flows and dollar shortages. Profit repatriation has
become more difficult, especially in emerging markets experiencing dollar crunches or
tightened foreign currency controls. In Bangladesh, several top-performing MNCs—including
British American Tobacco and Grameenphone—reduced their dividend payouts significantly
in 2023 due to their inability to repatriate earnings amid dollar shortages, despite healthy profits
(Habib, 2024).

A notable recent example comes from Bangladesh, where the central bank authorized local
banks to conduct foreign trade using the Chinese yuan in 2022 (The Daily Star, 2022). This
move aimed to reduce reliance on the US dollar amid severe pressure on foreign exchange
reserves, which had declined from $46 billion in 2021 to under $20 billion by mid-2024.
Despite the policy, adoption has remained slow, partly due to banks' hesitancy and the
operational complexities of managing dual currency settlement systems. For MNCs operating
in Bangladesh—particularly in the FMCG, telecom, and energy sectors—this shift complicates
treasury operations, as they must now prepare for transaction and profit repatriation in a
combination of USD and yuan, potentially exposing them to cross-currency basis risk and
35
liquidity delays. This hybrid exposure illustrates how partial de-dollarization in practice creates
a more fragmented, less predictable operating environment for multinationals (Habib, 2024).

In more severe geopolitical contexts, such as Venezuela (2015) and Russia (2022–2024),
MNCs have resorted to strategic deconsolidation. Instead of divesting outright, corporations
like General Motors and Merck opted to remove troubled subsidiaries from consolidated
financial statements to reduce reporting volatility and limit exposure (Ortiz et al., 2024). This
approach is now seen as a viable middle ground for firms facing capital controls, sanctions, or
legal uncertainty, allowing continued local operations without full exposure to FX and
valuation risk (Evenett & Pisani, 2023).

Increasingly, these disruptions are pushing firms toward adaptive strategies such as holding
hard currency reserves locally, maintaining a portion of profits in gold or bonds, or delaying
distribution of earnings altogether.

12.2 Challenges in Trade Finance and Pricing Strategies

As countries seek to reduce their reliance on the US dollar in trade settlement, MNCs face
growing operational frictions in cross-border pricing, invoicing, and transaction processing.
China’s yuan internationalization strategy, for instance, has expanded QR-code-based
UnionPay networks across Southeast Asia and encouraged bilateral yuan settlements through
record-level offshore swap lines (Reuters, 2025a). Bangladesh has officially allowed trade in
Chinese yuan to alleviate pressure on its dollar reserves, though many banks remain cautious
in implementation (The Daily Star, 2022).

In Africa, the Pan-African Payment and Settlement System (PAPSS) is enabling intra-
continental trade in local currencies, potentially reducing dollar usage by billions annually.
However, MNCs must now maintain parallel systems for multi-currency invoicing and adapt
to new payment frameworks with varying liquidity and legal standards (Reuters, 2025b).

These trade finance shifts are especially complex in sectors with regulated pricing, such as
pharmaceuticals, or where inputs are still dollar denominated. Companies often resort to dual
pricing models or FX-linked contractual clauses to protect against exchange rate
misalignments. Internal ERP systems are being upgraded to accommodate real-time FX
adjustments and multi-currency settlement tracking.

36
12.3 Shift in Hedging and Financing Behavior

A third major area of change is the evolution of corporate hedging strategies. As dollar
volatility rises and global access to dollar liquidity fragments, MNCs are reevaluating their
traditional hedging mechanisms. According to the BIS, one major factor behind the dollar’s
April–May 2025 depreciation was a wave of ex post hedging by non-US institutional
investors—particularly from Asia—seeking to protect dollar-denominated assets during
market stress (Shin et al., 2025). The majority of this hedging activity occurred during Asian
trading hours, further confirming its geographic origin.

At the firm level, companies like BYD have taken aggressive steps to mitigate FX volatility.
The EV manufacturer committed $5 billion in 2025 toward foreign exchange derivatives to
protect its global revenues from yuan fluctuations and cross-border financial risks (Ren, 2025).
Such initiatives are emblematic of a broader trend among MNCs investing in robust, tech-
driven treasury systems with integrated currency overlay strategies.

MNCs also face higher hedging costs due to interest rate differentials. Elevated short-term US
rates have made FX swaps more expensive, reducing hedge ratios across large institutional
portfolios in Japan, Taiwan, and parts of Europe (BIS, 2025). Firms are adapting by:

• Implementing natural hedges through supply chain localization.

• Diversifying debt instruments across multiple currencies.

• Utilizing local funding sources to reduce USD dependency.

These financial and operational transformations are part of a broader strategic pivot toward
regionalization and resilience.

13. Future Outlook and Scenarios

The long-term trajectory of de-dollarization remains uncertain. While its full realization may
take decades, recent events—including trade realignments, sanctions, and technological
innovations—have accelerated movement toward a multipolar currency landscape. This
section outlines three future-focused scenarios, grounded in international financial
management principles.

37
13.1 Will De-dollarization Accelerate or Stall?

The global dollar system remains resilient due to its liquidity, network effects, and institutional
trust. Despite the Bloomberg Dollar Index declining over 9% in early 2025, the dollar still
accounts for nearly 60% of global reserves and over 80% of trade finance (Earle, 2025).

However, several forces could accelerate de-dollarization:

• Sanctions and tariff regimes, particularly under Trump-era policies, have eroded trust
in US assets.

• Rising official gold reserves in China, Russia, and GCC states

• Expansion of currency swap agreements and regional settlement frameworks

Conversely, structural inertia may slow progress. The dollar remains dominant in global
investment flows, especially for commodities and sovereign debt. Capital account restrictions
in yuan and ruble markets continue to limit their global utility. As such, the near-term outlook
points to gradual rebalancing, not a replacement.

13.2 Could a Digital Currency Lead the Next Reserve Revolution?

Central bank digital currencies (CBDCs) could reshape reserve dynamics if widely adopted.
China’s e-CNY and Project mBridge demonstrate the feasibility of cross-border CBDC
settlement. The People’s Bank of China has also opened its futures markets to foreign
institutions and introduced yuan FX futures, enhancing its financial toolkit (CNBC, 2025).

Digital currencies offer advantages:

• Bypass correspondent banking

• Enable programmable, conditional transactions.

• Reduce settlement costs in trade finance.

Yet, challenges remain

• Legal infrastructure and global interoperability gaps

• Data security and surveillance concerns

38
 • Institutional hesitancy in large-scale adoption

CBDCs are likely to complement, not replace, traditional reserves in the foreseeable future.
However, they may give early-mover countries increased leverage in setting financial
standards.

13.3 Potential Models of a Multipolar Currency Order

As de-dollarization unfolds, the future may not feature a singular replacement to the US dollar
but rather a pluralistic configuration of competing monetary centers. Below are three potential
structural models that could emerge, each with unique institutional, strategic, and operational
implications.

Model Description Strategic Implications

Tripolar A world in which the US dollar, MNCs will need to conduct

Reserve euro, and Chinese yuan function as regionalized treasury planning,
System co-dominant global reserve maintain reserve assets in multiple
currencies. Each serves as the currencies, and develop operational
primary anchor for its respective fluency across three divergent legal
geopolitical and economic sphere: and financial frameworks (Shin,
North America (USD), the European 2023; Ray & Maini, 2025).
Union (EUR), and East/Southeast
Asia (CNY).

Regional Bloc Trade and finance are increasingly Corporate treasury teams must
Currencies localized within blocs such as invest in decentralized transaction
BRICS, ASEAN, or the African capabilities, interface with multiple
Continental Free Trade Area central bank-led platforms, and
(AfCFTA), each using its own monitor regional compliance and
digital or fiat mechanisms for intra- FX risk across heterogeneous
bloc settlements. Systems like systems (Reuters, 2025b; Kuik,
BRICS Pay and PAPSS may mature 2025).

39
 into formal, bloc-wide
infrastructures.

Digital Future trade flows may use Settlement systems may bypass
Commodity- blockchain-based instruments traditional SWIFT-based rails,
Linked backed by physical assets such as forcing MNCs to adapt to smart
Settlement gold, carbon credits, or strategic contract-driven clearing and
commodities. These could be used programmable asset conditions.
particularly for bilateral or This model could fundamentally
multilateral agreements in energy, alter how cross-border contracts
metals, or food trade. and supply chain payments are
structured (Earle, 2025; CNBC,
2025).

Each of these models is not mutually exclusive; elements may co-exist or evolve in stages.
Nevertheless, all signal a growing divergence from a single reserve currency regime toward a
dynamic, institutionally diverse global monetary order.

14. Conclusion

14.1 Summary of Findings

This study explored how the ongoing global shift away from dollar centrality is reshaping
multinational corporate strategy. Key findings include:

• MNCs are facing new constraints on profit repatriation, FX exposure, and regulatory
compliance.

• Strategic responses include deconsolidation, yuan-denominated trade, and expanded

hedging mechanisms.

40
 • The rise of regional settlement systems (e.g., PAPSS, BRICS Pay) and digital
instruments is fragmenting the once-uniform global financial infrastructure.

14.2 Final Thoughts on Policy, Strategy, and Global Balance Shifts

Across all sections of this paper, from the historical roots of the US dollar's dominance to
emerging challenges in global capital mobility—it is evident that de-dollarization is not a
singular trend but a collection of structural, political, and technological shifts interacting
simultaneously. For MNCs, navigating this transition requires far more than tactical treasury
adjustments. It necessitates a rethinking of international financial management at its core.

Strategically, corporations must diversify operational exposure by adopting local-currency

trade models where feasible, investing in currency-agnostic pricing and supply chain
frameworks, and strengthening treasury technologies to support multi-currency risk analytics.
The examples of FX-driven deconsolidation, growing intra-BRICS trade in national currencies,
and increased gold accumulation by central banks underscore the broader push toward financial
autonomy and resilience.

From a policy standpoint, the world is witnessing a decentralization of monetary influence.

Initiatives like PAPSS in Africa, the expansion of BRICS financial mechanisms, and the
internationalization of the yuan reflect an emerging intent among regional powers to insulate
themselves from US monetary policy spillovers. Whether this leads to cooperative multipolar
stability or fragmented volatility depends on the degree of global regulatory harmonization that
follows.

Ultimately, the global financial system is entering an era of overlapping spheres of influence—
where old certainties about liquidity, reserve assets, and trade invoicing are increasingly
challenged. For both firms and states, readiness for this shift hinges on institutional agility,
foresight in policy, and a willingness to engage in shaping new global norms—not just reacting
to their disruption.

41
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