De-dollarisation is a natural process of stabilisation as the dollar’s presence in world markets — in foreign-exchange transactions (88.5%), trade invoicing (50%), SWIFT payments (42.3%), international debt securities (42%) and cross-border loans (32%) — far exceeds the United States (US) economy’s share of both global Gross Domestic Product (less than 25%, down from 45% after World War II) and international trade (less than 12%).

Indeed, the share of the dollar in global central bank foreign currency assets has been falling steadily and is now down to 59% from over 70% in 2001 (and 85% in 1977). About 25% of this decline was the result of some countries (Singapore and Malaysia, for instance) including China’s renminbi in their reserves, with the balance being made up by shifts into other non-G7 currencies (Australian dollar, Canadian dollar, Swedish krona, South Korean won, amongst others). Also, and very significant, there has been an overall decline in foreign currency assets (by about 9%) due to a substantial change in central banks’ demand for gold. Global central banks already own nearly 37,000 tonnes of gold — about 17% of all the gold ever mined — and have been buying at a rate of over 1,000 tonnes for each of the last three years.

De-dollarisation is a natural process of stabilisation as the dollar’s presence in world markets — in foreign-exchange transactions (88.5%), trade invoicing (50%), SWIFT payments (42.3%), international debt securities (42%) and cross-border loans (32%) — far exceeds the United States (US) economy’s share of both global Gross Domestic Product (less than 25%, down from 45% after World War II) and international trade (less than 12%).

Indeed, the share of the dollar in global central bank foreign currency assets has been falling steadily and is now down to 59% from over 70% in 2001 (and 85% in 1977). About 25% of this decline was the result of some countries (Singapore and Malaysia, for instance) including China’s renminbi in their reserves, with the balance being made up by shifts into other non-G7 currencies (Australian dollar, Canadian dollar, Swedish krona, South Korean won, amongst others). Also, and very significant, there has been an overall decline in foreign currency assets (by about 9%) due to a substantial change in central banks’ demand for gold. Global central banks already own nearly 37,000 tonnes of gold — about 17% of all the gold ever mined — and have been buying at a rate of over 1,000 tonnes for each of the last three years.

The Russian invasion of Ukraine and the sanctions imposed on Russia (notably including preventing access to SWIFT, the largest global settlement network) was a nodal point in gold buying; it also created a structural shift in thinking amongst central banks and governments alike, in view of the risk that the US could use the dollar’s hegemony to punish countries that don’t toe the US line.

Donald Trump’s return as US President has accentuated this risk, as it clear that he wants every country to toe his constantly shifting line. He has already threatened Brics and other countries with dire consequences if anyone abandons the dollar for reserves or transactions. And, despite being surrounded by supposedly sound-minded “techbros”, he has also issued an executive order banning the development of a US central bank digital currency.

Meanwhile in the real world, China, on March 17 this year announced that “the digital RMB cross-border settlement system will be fully connected to the ten Asean countries and six Middle Eastern countries”, which means that 38% of world trade will bypass SWIFT and be settled in RMB. Already, in 2024, cross-border RMB settlement volume of Asean countries alone exceeded 5.8 trillion yuan (about $880 billion), a 120% increase from 2021. This process is infinitely more efficient in terms of time and cost than the old world system of SWIFT still championed by the US — instead of the three-five day delays in the current system, the digital currency bridge developed by China ensures clearing and settlement in seconds, and the blockchain technology used also enables anti-money-laundering rules. Today, 87% of countries in the world have completed the adaptation of the digital RMB system and the scale of cross-border payments has already exceeded 1.3 trillion dollars (about 3% of global trade).

The future is now, and it looks and smells like China, with the 78-year-old American President shaking his fist in vain. His tariff programmes will only succeed in increasing inflation globally and, critically, shifting trade away from the US. The dollar could come down, which, over time, may help reduce the US trade deficit — one of the red rags to Trump’s bull. But even this will not materially impact investment and jobs in the US, since investors fear nothing more than policy uncertainty (as we, in India, know too well).

India has also issued a central bank digital currency, the digital rupee, but its use is still in the pilot stage. Unlike most other countries, we have not linked up with the RMB system, but given that China is already our second largest trading partner (after the US), with trade reaching $118 billion in 2024 and comprising 15% of our total trade, this is something we need to give due consideration.

The good news is that our government appears to have finally understood that it is imperative that we build sound economic ties with China, and not just to protect ourselves from the risk of Trump’s policies. China is our largest neighbour, a technologically sophisticated growing power, and, a possible future leader of the world. The sooner we find acceptable solutions to our border issues the better.

Jamal Mecklai is CEO, Mecklai Financial. The views are personal