De-dollarisation in Progress? Asia’s Shift Toward Local Currencies and a Global Yuan

For decades, the US dollar has been the undisputed king of global finance. From trade settlements to foreign exchange reserves, its dominance seemed unshakeable. However, in recent years, particularly in Asia, a quiet but determined movement toward “de-dollarisation” has been gaining momentum. This isn’t about dethroning the dollar overnight, but rather a strategic shift by Asian nations to increase the use of local currencies in trade and investment, with China’s Yuan playing an increasingly prominent role on the global stage.

Why the Shift? The Catalysts for De-dollarisation

Several interconnected factors are driving this trend in Asia:

1. Geopolitical Risk Mitigation: The freezing of Russia’s dollar reserves in 2022 sent a stark message: reliance on the dollar exposes economies to geopolitical weaponization. This prompted many Asian nations to accelerate efforts to insulate their trade and reserves from potential external shocks and sanctions.
2. Exchange Rate Volatility: The dollar’s strength and volatility, often influenced by US domestic monetary policy (like interest rate hikes by the Federal Reserve), can create significant instability for Asian economies heavily reliant on dollar-denominated trade. Using local currencies reduces this exposure to currency swings.
3. Desire for Economic Sovereignty: Many countries simply want greater control over their own financial destinies. Reducing dollar dependence enhances their economic autonomy and resilience against external pressures.
4. Rising Cost of Dollar Hedging: Hedging against dollar fluctuations can be costly for businesses and institutions. By conducting more transactions in local currencies, they can lower these foreign exchange risks and associated costs.
5. Rise of Regional Economic Powerhouses: The increasing economic heft of Asian nations, particularly China, naturally leads to a desire for their currencies to reflect their global standing.

Asia’s Strategic Moves: Local Currency Settlement Frameworks

The most tangible evidence of de-dollarisation in Asia comes from the proactive efforts of regional blocs and individual countries to promote local currency settlements (LCS).

• ASEAN’s Ambitious Plan: The Association of Southeast Asian Nations (ASEAN) is at the forefront of this movement. Their Economic Community Strategic Plan for 2026–2030 explicitly aims to significantly boost the use of local currencies in intra-Asian trade and investment. Initiatives like cross-border QR code payments and account-to-account transfers are rapidly expanding, making it easier and cheaper to conduct transactions without converting to USD. Countries like Thailand, Indonesia, and Malaysia have already harmonized their Local Currency Transaction Framework Operational Guidelines, including portfolio investments as eligible transactions.
• Bilateral Agreements: Beyond ASEAN, many Asian nations are entering into bilateral agreements to settle trade in their respective local currencies. India, for example, is pursuing rupee-based trade with various partners, aiming to enhance its economic sovereignty.

The Growing Influence of the Chinese Yuan (RMB)

While the shift is towards various local currencies, the Chinese Yuan (RMB) is uniquely positioned to gain global traction in this de-dollarisation narrative.

• Trade Settlement Shifts: China, as the world’s largest trading nation, is actively pushing for bilateral trade to be settled directly in Yuan. This is particularly evident in energy deals, where Russia is now selling oil to Asian countries in Yuan or Rubles, chipping away at the dollar’s traditional role in commodity pricing.
• Belt and Road Initiative (BRI): China’s ambitious Belt and Road Initiative is a key vehicle for Yuan internationalization. As China finances and builds infrastructure projects across Asia, Africa, and beyond, a growing portion of these transactions, loans, and repayments are being denominated and settled in Yuan. This organically expands the currency’s global footprint.
• Alternative Payment Systems: China is actively working with BRICS nations (Brazil, Russia, India, China, South Africa) to develop alternative cross-border payment platforms to circumvent traditional, dollar-centric networks like SWIFT. Projects like mBridge (involving China, Thailand, and the UAE) enable cross-border payments without relying on US banks.
• Reserve Diversification: Asian central banks are slowly but steadily diversifying their foreign exchange reserves away from the dollar, with the Yuan being a natural alternative for many given China’s economic size and regional influence.

The Road Ahead: A Gradual, Multipolar Shift

It’s crucial to understand that de-dollarisation is a gradual, long-term process, not a sudden collapse of the dollar’s dominance. The dollar still enjoys unparalleled liquidity, vast bond markets, and deep global trust. However, the trend is undeniable.

As Asia’s economies continue to grow, integrate, and assert their financial sovereignty, we can expect:

• Increased use of local currencies in regional trade: This will reduce friction and costs for businesses within Asia.
• A growing role for the Chinese Yuan: Its use in trade, investment, and potentially as a reserve currency will expand, particularly within China’s sphere of influence and among like-minded nations.
• A more multipolar global financial system: While the dollar will likely remain a major player, it may eventually share its reserve status and transactional dominance with other strong currencies and regional blocs.

For businesses, investors, and policymakers, understanding this evolving landscape is key. Adapting to a world where trade and finance are increasingly conducted in a more diverse basket of currencies will be essential for navigating Asia’s dynamic market pulse.