De-Dollarisation: Myth, Reality, and the Limits of Yuan and BRICS Currency Ambitions
In recent years, financial and geopolitical analysts have repeatedly discussed the possibility of a shift away from the US dollar—commonly referred to as de-dollarisation. The idea is captivating: the dollar has enjoyed an unparalleled position for decades as the dominant currency in global reserves, trade, and finance. But with rising tensions between the West and countries like China and Russia, many have wondered whether this dominance could be challenged by alternative currencies such as the Chinese Yuan or a proposed BRICS currency.
An episode of Shekhar Gupta’s Cut The Clutter sheds light on this debate, separating facts from fantasy. Below is a deep dive into the realities of de-dollarisation—how far it has actually progressed, where the dollar’s share is going, and why replacing it may be far more complicated than headlines suggest.
The Resilient Dominance of the Dollar
Despite periodic claims that the dollar’s reign is close to ending, hard data paints a more nuanced picture. According to the International Monetary Fund (IMF), the US dollar still makes up about 59% of the world’s total foreign exchange reserves. This is down from 72% in 1999, but the change has been gradual rather than precipitous—spanning more than two decades.
In global trade, the dollar’s presence is even more overwhelming—nearly 90% of all cross-border trade transactions involve the US dollar in some capacity. This makes it the primary medium of exchange not only between the US and its trading partners, but also between many countries that have no direct trade connections to the US at all.
Where Is the Shift Happening?
The slow diversification away from the dollar has primarily benefited other established Western currencies—the euro, the Japanese yen, and the British pound. A smaller portion has moved into what some call “minor” but trusted currencies, such as the Canadian dollar, Australian dollar, Swedish krona, and South Korean won.
Interestingly, the Chinese Yuan has gained very little ground despite widespread speculation about its potential. Less than 5% of global reserves are held in Yuan, according to mid-2022 IMF figures. Of this, around one-third is held by Russia—a country that shifted heavily into Yuan after being hit by Western sanctions following the 2022 invasion of Ukraine.
The Yuan’s Structural Limitations
The main obstacles to the Yuan’s rise are rooted in China’s economic policies and governance approach:
- Lack of Full Convertibility – The Yuan is not freely convertible like the dollar, euro, or yen. This means there are tight government restrictions on how much can be exchanged and moved offshore.
- Capital Controls – China heavily restricts the flow of money in and out of the country to manage currency stability. These capital controls rank China low (106th out of 165 countries) in terms of financial openness.
- Trust Deficit – While countries like Russia may be compelled to use the Yuan for political reasons, nations with strong governance and open economies overwhelmingly prefer Western currencies that are backed by legal transparency, political stability, and credibility.
- Dependence on Chinese State Policy – The Yuan’s international acceptance is limited by the fact that China’s monetary policy is entirely state-driven, without independent central bank oversight.
For these reasons, even countries in Asia, Africa, and Latin America that trade extensively with China settle most of their transactions in dollars, not Yuan.
The BRICS Currency Idea: Unity or Illusion?
The BRICS grouping—Brazil, Russia, India, China, and South Africa—has also floated the concept of a shared currency to rival the dollar. The idea carries strong political symbolism, especially for nations seeking to reduce dependency on Western financial systems. However, economically and structurally, it faces daunting challenges:
- Economic Disparities – China’s nominal GDP is around $16 trillion—more than twice the combined economies of the other four BRICS members (~$7 trillion). This imbalance would give China disproportionate weight, making genuine monetary cooperation difficult.
- Political and Strategic Mistrust – India, for instance, is unlikely to accept any arrangement where China takes the lead due to longstanding border disputes and strategic rivalry.
- Lack of Institutional Infrastructure – A credible common currency requires aligned fiscal, monetary, and legal frameworks—something BRICS countries do not have and are unlikely to agree on in the near future.
Consequently, many economists see the “BRICS currency” as a political banner rather than a practical financial instrument.
India’s Position: Pragmatic and Dollar-Centric
India holds significant foreign reserves—a vital cushion for economic stability. The Reserve Bank of India primarily keeps these reserves in dollars and other trusted global currencies like the euro, pound, and yen.
There is no indication that India plans to shift significant reserves into Yuan or take part in a BRICS currency scheme dominated by China. For New Delhi, economic security hinges on global trust and liquidity, which remain strongly tied to the dollar.
The Bottom Line: A Slow and Selective Diversification
The movement away from the US dollar is real but modest, and it’s not flowing toward China or BRICS currencies in any meaningful way. Instead, countries seeking diversification are placing reserves in other Western currencies with strong liquidity, transparent governance, and deep financial markets.
The core reasons why the dollar remains resilient include:
- Unmatched liquidity and global acceptance.
- The US’s deep, open, and transparent capital markets.
- Lack of viable large-scale alternatives with both openness and trustworthiness.
Unless China drastically reforms its financial system—removing capital controls, allowing free convertibility, and building global trust—the Yuan will remain a marginal reserve currency. Likewise, the BRICS currency will stay in the realm of speculation rather than reality.
In conclusion: The dollar’s dominance is not absolute, but it remains the backbone of global trade and finance. De-dollarisation will likely continue, but at a slow pace, and in favor of already strong and trusted currencies rather than politically motivated alternatives. For now, the dream of a “post-dollar” world led by the Yuan or a BRICS currency remains just that—a dream.
About The Author
