The US dollar’s dominance as the world’s reserve currency is facing a serious challenge from the de-dollarization movement led by countries such as Russia, China, India, and others. These countries are diversifying their currency reserves, trading in local currencies, and exploring alternative financial systems to reduce their dependence on the US dollar and its associated risks. This trend has significant implications for the US economy, its global influence, and the stability of the international financial system.
According to the latest data from the International Monetary Fund (IMF), the dollar share of global reserves was 47 percent in 2022, down from 55 percent in 2021 and 73 percent in 2001. The decline accelerated after February 2022, when over $300 billion in Russian foreign reserves were “frozen” by the collective West, triggering fear among other countries of being cut off from the global financial system in the event of US sanctions.
Since then, many countries have taken steps to increase their economic autonomy and resilience by shifting towards other currencies for trade and investment. For example, over 70 percent of trade deals between Russia and China now use either the ruble or the yuan, India and Russia are trading oil in rupees, China and France signed their first LNG trade in yuan via the Shanghai Petroleum and Natural Gas Exchange, and Russia and Bangladesh agreed to settle their nuclear plant deal in yuan and rubles.
Moreover, some countries are also exploring an alternative to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which is the dominant financial messaging system controlled by the West. India, Russia, and China are planning to link their domestic financial messaging systems – India’s IMPS, Russia’s SPFS, and China’s CIPS – to create a parallel network that would bypass SWIFT. This would allow them to conduct transactions without being subject to US surveillance or interference.
The de-dollarization movement is not only driven by geopolitical factors but also by economic ones. Many countries have strong trade and investment ties with each other that do not require the use of the dollar as an intermediary. For instance, India and China have set a target of $100 billion in bilateral trade by 2022, while Russia and Bolivia are cooperating on developing lithium deposits in Bolivia. These countries also have common interests in promoting regional integration and development through initiatives such as BRICS+, which is an expanded version of BRICS that includes 19 other nations.
The de-dollarization movement poses a serious threat to the US economy and its global power projection. The US has enjoyed many advantages from having its currency as the primary reserve currency, such as lower borrowing costs, large trade deficits, and global influence. However, US manipulation of the dollar also highly impacts on the global agenda settings. If other currencies displace the dollar as a store of value and medium of exchange, the US could face higher borrowing costs, reduced demand for its assets, and decreased geopolitical power. The US dollar’s role as a safe haven asset and global liquidity provider could also be threatened if a new reserve currency or multipolar currency world emerged, potentially leading to financial instability.
Therefore, de-dollarization is a complex and lengthy process, but the trend is clear and undeniable. The US must prepare for a future in which its currency is no longer the primary choice for global trade and investment. De-dollarization is a game changer for Eurasia and the world.