By Dr. Kalim Siddiqui
This final part on the trends and prospects of de-dollarization in the global economy explores how international institutions aided the dollar in gaining global dominance, BRICS’ successful initiatives for increased financial stability, the impact of de-dollarization, and finally, how to end financial hegemony.
VIII. The Role of Dollarization in Global Capitalism
Marxist monetary theory critiques dollarization by examining its mechanisms, consequences, and alternatives (Siddiqui, 2023a). The global monetary system, dominated by the US dollar, has evolved through three distinct phases: the gold-dollar framework, the oil-dollar structure, and the institution-dollar scheme. In the 1980s, the rise of neoliberalism, reinforced by the Washington Consensus, imposed free-market policies on the Global South. The globalization of financial markets further entrenched dollarization, particularly after the collapse of the Soviet Union and the Eastern Bloc in 1991. Concurrently, debt crises in developing countries gave the US opportunities to impose macroeconomic policies enforcing fiscal and monetary “discipline.”
Alex Callinicos broadens the definition of new imperialism by examining the economic and geopolitical strategies of Western nations to sustain their global dominance. His analysis underscores the role of international institutions—such as the International Monetary Fund (IMF), World Bank, and World Trade Organization (WTO)—in perpetuating neoliberal economic policies. Callinicos highlights how the US and the European Union (EU) use these institutions as instruments of imperialism. Through economic, diplomatic, and even military means, they enforce policies that entrench dependency and consolidate their influence over developing nations. Callinicos’ perspective extends the understanding of imperialism, emphasizing the contemporary mechanisms of control and dominance in the global financial system (Callinicos, 1989).
Joseph Stiglitz (2003) offers a critical analysis of the international financial system, advocating for closer economic and trade cooperation among nations to mutually benefit both developed and developing countries. He critiques the “one-size-fits-all” approach to economic policy commonly propagated by international financial institutions, such as the International Monetary Fund (IMF) and the World Bank. Stiglitz calls for the reorganization of global economic relations, founded on mutual respect, shared values, and common objectives, to ensure more equitable and sustainable development.
According to Thirlwall’s model, the economic growth rate of dollarized countries is lower than that of countries with sovereign currencies. Moreover, the economic growth in dollarized nations tends to be more unstable, as these countries are highly susceptible to falling into debt traps. Marxists argue that dollarization is a key method through which the power of the US dollar as the dominant global currency is expanded. The US, by imposing restrictions on fiscal policies in dollarized countries, exacerbates their economic vulnerability and dependence (Cheng and Lu, 2024).
IX. De-Dollarization and Its Impacts
De-dollarization refers to the process of moving away from the US dollar in global transactions. This shift can involve several strategies, such as diversifying foreign currency reserves, settling trade in alternative currencies, and establishing regional payment systems. By reducing the use of the dollar in international trade and financial transactions, de-dollarization diminishes the global demand for dollar-denominated assets, which currently dominate international capital markets (Siddiqui, 2023b).
De-dollarization presents a significant opportunity for countries, especially in the Global South, to gain greater control over their economic futures. By reducing dependency on the US dollar, these nations can shield themselves from external financial shocks and policies that may not align with their own developmental goals. Furthermore, the shift towards a multipolar global economic order, as advocated by BRICS, could create a more balanced financial system, better representing the interests of the Global South.
The objective of de-dollarization is to challenge the US dollar’s hegemony in global trade and finance, promoting economic sovereignty and independence for countries outside the dollar’s sphere of influence. By encouraging the use of local currencies and establishing alternative financial institutions, such as the New Development Bank (NDB), BRICS aims to redistribute global economic power and build a more inclusive, multipolar financial system. If successful, this policy could enhance the financial sovereignty of the Global South and create an international economy that serves their interests.
X. BRICS’ Achievements in Financial Cooperation
One of BRICS’ most significant achievements in the area of financial cooperation has been the establishment of the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA). These initiatives aim to foster greater financial stability and reduce dependency on the US dollar in international transactions. For instance, the share of the US dollar in Russia–China bilateral trade settlements decreased from nearly 90 percent in 2015 to 46 percent in 2020. Furthermore, Russia and China have launched their own cross-border payment mechanisms, providing alternatives to the US-dominated Society for Worldwide Interbank Financial Telecommunication (SWIFT) network (Cheng and Lu, 2024).
Currently, BRICS accounts for about half of the world’s GDP and over 20 percent of global trade. As a result, BRICS’ de-dollarization efforts are not only reshaping financial relations within the bloc but are also having significant implications for the global economy.
China, a major importer of energy from Russia, Iran, and Venezuela—all BRICS members—is focused on boosting trade within the BRICS framework. Such trade is anticipated to move away from reliance on the U.S. dollar. Furthermore, China’s strategy to ban imports of U.S. oil aims to expand trade within BRICS and foster alternative currency arrangements, potentially undermining the dollar’s dominant global position.
Between 2016 and 2022, the use of the Chinese Renminbi (RMB) in cross-border transactions increased dramatically, rising from 20 percent to nearly 50 percent. Notably, trade payments involving Russia have contributed to this surge in RMB usage. In 2022, the share of Russian exports invoiced in RMB rose to 16 percent. Although most of these transactions involved Chinese firms, some RMB payments were also made between Russian entities and businesses in India and Southeast Asia.
In 2023, Russia took additional steps to promote the use of the rubble among BRICS economies. For example, the Russian central bank began publishing an official exchange rate for the rubble against the dirham (UAE currency) and the Egyptian pound. However, despite these efforts, economic sanctions imposed by the US and EU on Russian financial institutions, including those related to the rubble, have complicated these initiatives. Moreover, the US sanctions on Russia and Iran have led these countries to settle transactions using the RMB.
Despite these shifts, the US dollar remains the dominant global reserve currency, accounting for about 58 percent of global reserves in 2024. While the use of the dollar in global trade is showing signs of decline, such as a reduction in its share of allocated reserves from 59% in 2021 to 57% in 2022, this decline is gradual. Data shows that the dollar’s share of reserves has been falling by an average of 0.6 percentage points per year since 1999, with larger drops occurring in 2002, 2005, 2010, and 2015. However, despite these fluctuations, the total amount of US dollars held in global reserves continues to increase, and the dollar still comprises a significant portion of foreign exchange reserves, as illustrated in Figure 1b.
BRICS’ efforts to reduce dependency on the US dollar, along with the growing usage of alternative currencies such as the RMB, reflect a broader trend toward de-dollarization. While the US dollar remains a dominant force in global trade and finance, these developments indicate a gradual shift toward a more multipolar global financial system. However, the challenges posed by US sanctions and the long-standing dominance of the dollar suggest that this shift will be slow and complex.
Figure 1a: US dollar share of global foreign exchange reserves and the US dollar index, 1999-2022 (in %; index January 2006=100)
Figure 1b: The Composition of World Foreign Exchange Reserve, from 1995 to 2023.
XI. The Impact of De-Dollarization and the Rise of Alternative Currencies
In recent decades, the strong performance of emerging economies and the rising share of these countries in global output have led to an increase in the holdings of non-dollar reserves. The Russian-Ukrainian War of 2022, which resulted in the freezing of Russia’s foreign exchange reserves by the US and EU, has raised concerns about the security of assets denominated in US dollars within the global financial system. This development has prompted other countries to seek alternatives, such as gold and other commodities, for their reserves (Siddiqui, 2022b).
Furthermore, the growing use of sanctions by the US and EU as political tools has pushed countries to explore alternative international payment and trade systems. US sanctions can freeze assets, reduce trade, and limit financial transactions, effectively isolating a country from the global economy. The US can leverage its control over the global financial system and the dominance of the dollar to enforce these measures unilaterally. As a result, countries are increasingly wary of their reliance on the US dollar for international trade and reserves.
China, which has not participated in sanctions against Russia, has become an alternative to the US dollar for countries seeking to diversify their financial holdings. Russia’s efforts to pivot towards the Chinese RMB are a key example of this shift. As shown in Figure 2, new estimates for 2022 suggest that the Bank of Russia holds nearly a third of the global RMB reserves reported by central banks. However, due to Russia’s financial and geopolitical challenges, the composition of its reserves has remained largely unchanged since 2021, when Russia’s reserve composition ceased to be reported.
In 2022, RMB reserves accounted for only 2.7% of the world’s allocated reserves. If we exclude Russia’s share, which is an outlier due to its exceptional financial and geopolitical circumstances, the RMB’s share falls to about 1.6%. This relatively small share highlights that the RMB is still far from being a serious alternative to the US dollar on a global scale. Despite China’s economic rise, the country’s internationally traded assets and liabilities make up only about 4% of global totals, which limits the RMB’s ability to challenge the dollar.
Other countries, such as Brazil, have also reduced their dollar reserves in favor of the RMB. Brazil’s dollar reserves decreased from 86.03% to 80.34% in 2021, while the share of RMB reserves rose from 1.21% to 4.99%. Similarly, countries like Nigeria and Iran made similar shifts in previous years. These changes indicate that there is growing interest in diversifying away from the US dollar, but the shift is still gradual and limited.
Russia, one of the world’s largest producers of oil, has been at the forefront of de-dollarization efforts. In 2013, 95% of Russia’s oil and gas exports to BRICS countries were traded in US dollars. However, since 2014, the Russian central bank has steadily reduced its dollar reserves. As of now, the US dollar makes up only 16.4% of Russia’s reserves. The euro represents 32.3%, while gold constitutes 21.7% (driven by the purchase of $40 billion in gold over the past five years). The RMB now accounts for 13.1% of Russia’s reserves.
The gradual acceleration of de-dollarization can be expected as the US faces the challenge of servicing its enormous national debt, currently at $34 trillion. A reduction in foreign holdings of US Treasury securities and US dollar deposits could trigger significant economic consequences for the US. While this scenario is unlikely to unfold in 2024, world events will continue to be closely monitored by the US government and the Federal Reserve. The US may adjust its approach to trade sanctions, which could further impact the global demand for US debt.
Figure 2: Countries holding Chinese RMB in reserves (as a share of total RMB holdings, 2022)
Figure 3: Share of the US dollar in the Global Economy and Global Financial Transaction, 2023. (Changes from 2012 to 2023)
XII. The US Dollar’s Continued Dominance in Global Financial Markets
The US dollar remains the dominant currency in the world’s largest and most liquid financial markets, including the biggest stock and bond markets (see Figure 3). It is the primary currency used within the world’s dominant payment network, SWIFT, which consists of 11,000 member institutions across 200 nations and territories, processing over 42 million transactions per day, totalling nearly $5 trillion in daily average transaction value (IMF, 2024).
Despite the rise in the economic share, productivity, and exports of the Global South, the US dollar’s dominance persists. In 2020, the dollar constituted 58.9% of foreign exchange reserves globally, 33.8% of marketable US Treasury debt was held by foreign entities, and 60.8% of international foreign currency banking claims and liabilities were denominated in US dollars. Financial transactions and assets in the global markets are primarily traded in dollars, highlighting the dollar’s continued significance.
The dollar’s position as the world’s leading currency is further solidified by its status as a “safe haven” asset. This is due to the US’s unique macroeconomic advantage, as it enjoys exorbitant privilege: the ability to issue debt in its own currency, reducing the risk of default. This privilege allows the US to borrow in dollars and repay in dollars, with the Federal Reserve capable of issuing currency as needed to service national debt.
Trade and transaction data from the past decade underline the US dollar’s central role in international finance. The US accounts for about 25% of global GDP, but its share of global trade and services is smaller, at around 10%. Despite this, the US dollar plays a dominant role in global trade, capital markets, and international debt. For example, in July 2024, SWIFT payments in US dollars reached a new high of 45.6% of all international financial transactions, marking a 13-percentage-point increase since 2012. Meanwhile, the Chinese RMB reached a record high of 3% of global payments (UNCTAD, 2023)
China has made significant strides in internationalizing the RMB through the development of institutions such as the Cross-Border Interbank Payment System (CIPS), UnionPay, and the Digital Yuan. These efforts promote the use of the RMB in bilateral trade, including increasing oil purchases and sales in local currencies through SWAP agreements (Siddiqui, 2021). The shift toward local currency trade is further supported by China’s strategic initiatives like the Shanghai Cooperation Organisation (SCO), the Asian Infrastructure Investment Bank (AIIB), the New Development Bank (NDB), and the Belt and Road Initiative (BRI) (Siddiqui, 2019b).
In the international credit card market, UnionPay’s use has surged, accounting for 45% of all credit cards in circulation in 2020. This move offers an alternative for countries under US and EU sanctions, such as Russia, Iran, Cuba, and Venezuela, enabling them to bypass US-dominated financial systems.
At the 2022 summit in Uzbekistan, members of the Shanghai Cooperation Organisation (SCO) agreed to expand trade in local currencies. This strategic move challenges the dominance of the US dollar and is emblematic of the growing shift toward alternative currencies in global trade. The SCO, comprising major emerging economies such as China and Russia, represents a significant portion of the world’s population and economic output. The expansion of local currency trade within the SCO reflects a broader trend aimed at reducing reliance on the US dollar and undermining its global dominance (Siddiqui, 2023d).
Mainstream economists view that the international monetary and financial system is supposed to facilitate all trading countries with payments arrangement within which trade can be carried on, but in real world is quite different (Siddiqui, 2019c).
The international financial system promotes US hegemonic interests. Under current international payment system, for trade between two countries, they first have to acquire US dollars in order to exchange commodities among themselves. It means lack of US dollar for any country would keep the country away from international transactions. This is what happens when developing countries trade among themselves. The de-dollarisation would reduce their reliance on the US dollar as a medium of circulation, and holding reserves for international transactions.
XIII. Conclusion
The US dollar hegemony allows the US to extract trillions of dollars annually from the Global South, diverting resources that could otherwise fuel domestic investments and economic growth. This ongoing extraction undermines the economic expansion of these nations (Siddiqui, 2024c). De-dollarization, in contrast, offers the Global South an opportunity to regain control over their economic future by reducing dependency on the US dollar. This shift could help shield these countries from external financial shocks, as well as promote a more equitable global financial system that better protects the interests of the Global South.
By replacing the US-controlled international payment systems such as SWIFT, the Global South can gain economic sovereignty and independence. Breaking the US monopoly on international payments would be a significant step toward strengthening the economic independence of these nations.
The US dollar has long been the dominant reserve currency, functioning as the primary medium of exchange and unit of account in international transactions. This dominance has enabled the US to exert significant control over the global financial system and influence the economic policies of other nations. As the global reserve currency, the US can finance its deficits by simply printing more dollars, enabling it to borrow and spend without facing the usual consequences, such as inflation or currency depreciation. This immense advantage allows the US to acquire resources from other countries, invest overseas, and finance its current account deficits with relative ease.
Furthermore, the US uses the dollar to maintain its hegemony. It can make dollars available to countries it favours while punishing those whose policies do not align with US interests, as seen in the recent freezing of assets and sanctions against Iran, Russia, and Venezuela.
A new financial architecture that replaces the US dollar’s hegemony is essential in the evolving global economy. However, this transition must avoid replacing one currency’s dominance with another. Instead, the new system should ensure that the burden of adjustment in achieving payment balance falls on surplus countries, not deficit countries, as was the case under the Bretton Woods system and continues today.
The US dollar provides the US with a unique advantage: by printing more dollars, the US can acquire global resources, invest abroad, and manage its trade deficits. This ability to manipulate the currency makes it a powerful tool for exerting pressure on other countries. For example, the US has used its control over the dollar to coerce countries into accepting its policies or to punish those that oppose it.
The debate over de-dollarization reflects broader tensions in the changing global economy. While the US dollar’s dominance is deeply embedded in the international system, the rise of emerging economies and initiatives like those of BRICS suggest a potential reconfiguration of the global monetary system. The success of these efforts remains uncertain, but they represent a challenge to decades of US economic dominance and the pursuit of a more balanced global economic order.
In short, achieving the removal of the dollar’s hegemony is an important goal, but it is not sufficient on its own. Equally important is the elimination of financial hegemony. To accomplish this, adjustments must be made so that surplus countries—not deficit countries—bear the burden of correcting current account imbalances. Surplus countries must also increase domestic consumption through wage increases and reduce their exports. These measures would encourage growth in deficit countries, boosting their exports and creating more output and employment. By addressing imbalances and fostering a more equitable distribution of economic power, both surplus and deficit countries could benefit, leading to a stronger global economy with increased aggregate demand, output, and employment.
About the Author
Dr. Kalim Siddiqui is an economist specializing in International Political Economy, Development Economics, Trade and Economic Policy. Since 1989, he has been teaching economics at various universities in Norway and the UK. Dr. Siddiqui’s research interests encompass a wide range of topics, including political economy, international trade, and economic history, South Asia, and emerging economies. He has presented papers at international conferences across numerous countries, reflecting his global engagement in the field. His scholarly pursuits span six broad domains: Political Economy, Development Economics, Economic History, Economic Policy, Globalization, and International Trade. Dr. Siddiqui has made significant contributions to research in areas such as trade policy, globalization, and political economy. His work has been published in chapters of edited books and articles published in peer-reviewed journals. For inquiries, Dr. Siddiqui can be reached at: kalimsiddiqui567@outlook.com
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