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The United States is the most indebted country in the world. The annual budget deficit is close to 2 trillion dollars. This is the net borrowing requirement of the US Treasury for this year. On top is the need to repay older debt that is maturing in this year. That is another 9 trillion dollars. Hence the gross borrowing requirement is in excess of 10 trillion dollars this year. It is funded by American and foreign investors, including the foreign exchange reserves of the world. Imagine the stress this puts on global dollar surpluses and savings. To attract the financial flows toward the US bonds, the risk free interest rate offered is quite high, currently close to 5 percent.
De-dollarisation, done right, is not about abandonment; it’s about options
For any other country such a high debt load would have led to a downgrade of its sovereign rating. But this is the United States and its currency is still the king of the world. It still attracts capital from the rest of the world. The allure of dollar assets however is waning over time. The share of global foreign exchange reserves held in the form of dollar assets has gone down from 72 percent to 58 percent in the past twenty years. The trend is clearly downward.
That is why the world is talking about “de-dollarisation”. This year there are visible effects. The dollar index (DXY) which is a measure of the dollar’s strength, fell 11% in the first half of 2025. This is its steepest six-month slide in fifty years. The other big news is that of the rise of gold. For the first time, the value of the fraction of reserves in gold now exceeds that in U.S. dollar assets. This headline hides a subtler truth.
All the three pillars of dollar power —trade invoicing, cross-border clearing, and reserve management—are seeing real, if uneven, diversification. Politics has amplified the trend
According to the International Monetary Fund, 58% of the disclosed global forex reserves are still in dollars as of 2024, far ahead of any rival currency. But thanks to a historic gold rally, the market value of official gold holdings has gone above the holdings of US Treasuries presently in global reserves. That’s not the same as gold overtaking all dollar assets in reserve portfolios but it’s still symbolically powerful.
The political catalyst that kicked many reserve managers into rethinking about holding dollar assets, was the freezing of Russian sovereign dollar assets after the 2022 invasion of Ukraine, followed by the G7 and EU moves to harness profits from those assets to finance Ukraine. Even without outright “seizure,” the message is clear: dollar-centric reserves carry geopolitical risk. That has pushed diversification not only into other currencies but, more visibly, into gold.
The main problem for India to scale up rupee trade and invoicing is the partner’s appetite for Indian exports and rupee assets
All the three pillars of dollar power —trade invoicing, cross-border clearing, and reserve management—are seeing real, if uneven, diversification. Politics has amplified the trend. When BRICS leaders aired non-dollar invoicing ideas early this year, President Trump publicly threatened tariffs as retaliation—essentially using trade policy to defend dollar primacy.
The SWIFT network is still the backbone for dollar clearing via New York, but alternatives to dollar centric messaging and settlement are scaling. China’s CIPS has expanded volumes and participants; BIS-backed experiments like mBridge have already run live cross-border CBDC transfers among central banks in Asia and the Gulf.
India has tried to translate the de-dollarisation mood into concrete trade plumbing. New Delhi and Moscow spent much of 2023–24 exploring rupee settlements. But progress was halting because Russia did not want to sit on large, non-convertible rupee balances. The Reserve Bank of India has since given more leeway, by recently allowing surplus in vostro accounts to be invested fully in Indian government securities to give partners like Russia a safer home for their rupee stock. The main problem for India to scale up rupee trade and invoicing is the partner’s appetite for Indian exports and rupee assets.
Global dollar softness can coexist with rupee softness, and India’s external price signals are being driven by country-specific forces (tariffs, portfolio outflows, oil) as much as by the global dollar cycle
India is also experimenting with the RBI’s e-rupee pilot projects, and to extend UPI to foreign shores. If we can stitch together compliant, bilateral CBDC or local-currency settlements with key energy and import partners, some share of trade can circumvent dollar invoicing, clearing and settlement. But this is work in progress.
The main reason that rupee trade will expand only gradually is because of heavy reliance on the U.S. market as an export destination. The United States is India’s single largest buyer of merchandise goods. It also remains central for services exports. That concentration makes it rational for Indian firms to keep dollars at the core of pricing, hedging, and funding—even as they experiment with local-currency deals elsewhere.
For India, the strategy of de-dollarisation is not to wage a crusade against the dollar; it is to build resilience and bargaining power
Even as the dollar has weakened against a basket of major currencies, the rupee weakened against the dollar hitting record lows near 88.7. This means that the rupee lost even more ground to the euro and the yen. That tells you two things: global dollar softness can coexist with rupee softness, and India’s external price signals are being driven by country-specific forces (tariffs, portfolio outflows, oil) as much as by the global dollar cycle.
President Trump is pressuring India to cut down the purchase of Russian crude. This is the main reason for the penal tariffs of 50% on Indian goods. And he is asking G7 too to follow suit and penalise India. Hence the rupee slid to fresh lows, as markets have factored in weaker export earnings and persistent dollar demand from importers.
For India, the strategy of de-dollarisation is not to wage a crusade against the dollar; it is to build resilience and bargaining power. In practice, it means: (1) targeted local-currency invoicing where counterparties truly want Indian goods or rupee assets; (2) wider, safer channels for holding and deploying rupees abroad (the RBI’s vostro tweaks are an example); (3) continued reserve diversification, including gold and high-quality non-dollar assets; and (4) investing in payment rails (including CBDC-based ones) that let Indian banks and firms route around chokepoints when geopolitics turn rough. None of this eliminates the dollar’s centrality any time soon. But it does chip away at single-point fragility.
There’s a final paradox worth stating. A weaker dollar helps U.S. exporters, something President Trump publicly wants, yet Washington has also redoubled efforts to defend dollar centrality—invoicing, clearing, and reserves—sometimes via trade threats, which makes the dollar stronger. For countries like India, the correct response isn’t ideological. It is to keep options open, deepen domestic capital markets, and make the rupee useful to foreigners—by offering scale, liquidity, and predictable rules. De-dollarisation, done right, is not about abandonment; it’s about options.