De-dollarisation: Temporary blip, prolonged dip, or inevitable demise?

Published July 16, 2024

Executive Summary

While there is a gradual shift away from the dollar for trade related purposes and even more gradual shift for reserves, there are no contenders in the foreseeable future that can replace the dollar. The United States has made central banks and investors apprehensive with the weaponisation of the dollar as part of its sanctions strategy, but it remains the most trustworthy and safest asset in the world for investment.

De-dollarisation itself may be an inappropriate and inaccurate term. This paper would prefer terming this as de-monopolisation of the dollar.

With gradual increase in export competitiveness and greater participation in regional trade blocs, India can try in the medium to long-term to persuade countries to accept payment in rupees, as long as those countries find Indian goods attractive and competitive. In the meanwhile, India’s approach should be to diversify its forex portfolio and at the same time get into regional trading arrangements that are promoting the use of other currencies and payment mechanisms for trade. However, it should refrain from promoting greater global use of Chinese Renminbi.

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