EFFORTS to challenge the US dollar’s global dominance have been hindered by disparities in economic strength, reserves, infrastructure and innovation. However, recent advancements have enabled international and regional organizations to reduce reliance on the dollar for investment, trade and reserves. Emerging economies, like China, have grown significantly, improving economic resilience. The BRICS nations are exploring a new reserve currency, while countries are increasing the use of local currencies in trade agreements, such as Russia and China with the Ruble and Yuan. The rise of digital currencies and blockchain technology offers alternatives to traditional dollar-based transactions, with China’s digital Yuan aiming to facilitate international trade without the dollar. These efforts reflect a strategic move by countries and blocs to enhance economic sovereignty and reduce exposure to dollar-centric financial systems.
The notable example, the BRICS nations—Brazil, Russia, India, China and South Africa—have increasingly utilized local currencies in their intra-group trade. In 2012, BRICS countries signed agreements to promote trade in local currencies, aiming to replace the U.S. dollar as the primary unit of trade among them. Between 2017 and 2022, intra-BRICS trade increased by 56%, reaching $614.8 billion in 2022. At the 2023 BRICS Summit, member countries agreed to promote the accelerated use of local currencies in cross-border payments. Institutional mechanisms like the BRICS Interbank Cooperation Mechanism and BRICS Pay have been developed to facilitate these transactions. The trade among BRICS nations and local currency settlements rose to 85%, up from 26% two years prior. The Shanghai Cooperation Organisation (SCO) has been actively promoting the use of national currencies in trade and investment among its member states. In September 2022, during the Samarkand Summit, the SCO Heads of State Council approved a roadmap aimed at gradually increasing the share of national currencies in mutual settlements. For instance, on February 21, 2023, representatives from finance ministries, central banks and financial organizations of member states met to share experiences and discuss the development of payment and clearing systems for mutual trade in national currencies. For example, over 70% of commercial transactions between China and Russia are conducted in the Russian Ruble and the Chinese Yuan.
In the European Union (EU), trade and investment are dominated by the Euro followed by the U.S. dollar, with the Euro being the primary currency for exports (49%) and the dollar leading in imports (50%) as of 2022. The EU’s foreign direct investment (FDI) inflows increased by $12.3 billion in August 2024, with inward FDI stock valued at approximately $3 trillion and outward stock at $4.5 trillion in 2022. Additionally, foreign portfolio investments rose by $281.4 billion in June 2024. These figures underscore the euro’s prominence in EU exports and investments. Trade and investment volumes between Russia, its allies and Eastern countries have significantly shifted toward local currencies in recent years. In 2023, Russia’s total trade volume reached approximately $844 billion, with over 80% of its trade with China settled in Ruble and Yuan. A Eastern Europe and Central Asia primarily use national currencies for regional trade, though the U.S. dollar and Euro remain prevalent for international transactions. Investment flows, including Russia’s $38 billion inward FDI and $64 billion outward FDI in 2021, are also increasingly shifting to local currencies, reflecting a broader strategy to enhance regional economic resilience and sovereignty.
African nations are working to reduce reliance on the U.S. dollar in trade and investment to enhance economic sovereignty and mitigate vulnerabilities from currency fluctuations. The Pan-African Payment and Settlement System (PAPSS), launched by the African Union, facilitates cross-border trade using local currencies, saving the continent $5 billion annually in currency conversion costs. Countries like Nigeria and Tanzania have implemented policies to promote their national currencies in international transactions. Tanzania, for instance, has banned pricing in foreign currencies to strengthen the shilling’s role in trade. Additionally, the African Continental Free Trade Area (AfCFTA) agreement encourages member states to conduct trade in local currencies, fostering intra-African commerce and reducing dependence on external currencies. ASEAN member states are actively reducing their reliance on the U.S. dollar by promoting the use of local currencies in trade and investment. Initiatives include establishing Local Currency Settlement (LCS) frameworks among countries like Indonesia, Malaysia and Thailand to facilitate direct currency exchanges without involving the U.S. dollar. Efforts are also underway to enhance regional payment systems, integrating digital platforms and standardizing QR code payments across member nations. ASEAN finance ministers and central bank governors have expressed commitment to advancing local currency usage to strengthen financial resilience and reduce exposure to external economic shocks.
Middle Eastern nations are actively reducing their reliance on the U.S. dollar by diversifying currency usage in trade, strengthening regional financial cooperation and developing alternative payment systems. For instance, in January 2023, Saudi Arabia’s Finance Minister, Mohammed Al-Jadaan, announced the kingdom’s openness to trading in currencies other than the U.S. dollar, marking a significant shift in its economic policy. Additionally, countries like Saudi Arabia, Egypt and the United Arab Emirates have joined or expressed interest in joining the BRICS group, which advocates for reducing reliance on the U.S. dollar by promoting trade in local currencies among member states. Efforts are also underway to establish payment systems that facilitate transactions in local currencies, reducing the need for dollar-based settlements.
In a hypothetical world where countries have developed mechanisms to conduct trade and investment exclusively in their local currencies, the U.S. dollar would lose its status as the global reserve and trade currency, leading to a sharp decline in demand and devaluation. This would result in inflation, higher borrowing costs for the U.S. government and reduced purchasing power for American consumers. The U.S.’s ability to impose financial sanctions and influence global financial institutions would diminish, eroding its soft power and strategic leverage. Globally, the financial system would become multipolar, with regional currencies like the euro, Yuan and rupee gaining prominence. This shift would challenge U.S. economic dominance, forcing it to diversify its economy and foster innovation.
—The writer is a former Press Secretary to the President.
