Emerging Asia turns away from dollar as confidence in US fades

First Post

20 hours ago

Asian nations are accelerating a shift away from the US dollar as de-dollarisation gains momentum globally read more
The US dollar, long considered the cornerstone of international finance, appears to be losing its lustre in Asia, as countries across the continent embrace de-dollarisation. Analysts at Societe Generale and observers across Asia are noting that the greenback's appeal is being undermined by both geopolitical tensions and structural changes in global trade.
As reported by the South China Morning Post, the dollar's decline is being accelerated by rising interest in national currencies, scepticism about US economic policy and the long-term effects of the Trump-era tariff wars.
STORY CONTINUES BELOW THIS AD
According to a Societe Generale report led by Frank Benzimra, the shift away from US-dollar assets is gaining strength. The French bank attributed this trend to eroding confidence in dollar stability, a slowing US economy and declining oil prices since crude oil is priced in USD.
The first half of the year saw an 11 per cent drop in the US dollar index, marking its worst performance since 1973. This dramatic slump has pushed many investors toward Asia, where equity markets have offered better returns and currency strength.
Why Asia is leading the exodus
Asian markets are not only benefitting from the dollar's weakness, they're also becoming more proactive about using local currencies. According to Benzimra, currencies like the Taiwan dollar, Japanese yen and South Korean won have gained significantly against the dollar this year.
Meanwhile, the MSCI Asia-Pacific Index has risen by 12 per cent, nearly double the gain of the S&P 500. These developments, Benzimra explained, stem from 'contained inflation, benign growth, and additional central banking easing' in the region.
Adding to this, a report by Ksenia Muratshina in New Eastern Outlook provided a deeper geopolitical context. Muratshina argued that the rise of de-dollarisation in Asia is not just a matter of economic efficiency but a political necessity.
Asian countries, including China, India, Iran and Russia, have been actively shifting to non-dollar settlements as a form of financial sovereignty particularly in response to US sanctions and global dollar dependency.
Strategic motivations: From tariffs to sanctions
The Trump administration's trade policies, specifically the introduction of 'reciprocal tariffs,' are seen by many analysts as a turning point in global attitudes toward the dollar. Societe Generale noted that such moves led to widespread distrust and concern about the dollar's reliability as the world's reserve currency.
Muratshina echoed this by stating that Washington's weaponisation of the dollar through sanctions catalysed a reconsideration of currency choices, especially after the 2008 financial crisis and the US-China trade war.
STORY CONTINUES BELOW THIS AD
These events made it clear to many Asian nations that the dollar was not a neutral global tool, but one influenced by American geopolitical interests. In response, countries began seeking out trade mechanisms based on national currencies or bilateral arrangements.
Multilateral moves: Asean, Brics and beyond
Regional cooperation is reinforcing this shift. As New Eastern Outlook reported, multilateral institutions like the Eurasian Economic Union and Brics are increasingly conducting transactions in national currencies.
In fact, around 80 per cent of trade in the Eurasian bloc now bypasses the dollar. The Brics New Development Bank (NDB), under the leadership of Dilma Rousseff, is also working toward complete de-dollarisation, aiming to issue loans and securities in local currencies.
Asean, too, has jumped on board. The group's 2023 summit saw a commitment to expanding non-dollar settlements, which members believe will boost regional trade, shield economies from external shocks and reduce vulnerability to US policy changes.
As inflationary pressure from the US Federal Reserve's interest rate hikes created strain on emerging market currencies, the need for alternatives became urgent and clear.
National perspectives: China, India, Iran
On an individual country level, the motivations vary but converge on sovereignty. In China, the push to internationalise the yuan is framed as a long-term strategy to promote the currency as a global reserve option. The Indian government has set the internationalisation of the rupee as a policy goal, especially to provide flexibility for its trade partners who face restrictions or costs in dollar-based trade.
Iran presents a more urgent example. Facing severe US sanctions, the country has almost entirely removed the dollar from its trade and financial systems. Its central bank has developed mechanisms to facilitate foreign trade and maintain financial stability without reliance on Western institutions.
STORY CONTINUES BELOW THIS AD
Southeast Asia's calculated caution
Southeast Asia is taking a more gradual, yet steady, path. Nations like Indonesia, Malaysia and Vietnam are experimenting with rupee and yuan settlements. Bank Indonesia officials have openly stated that using local currencies reduces transaction costs and strengthens macroeconomic stability.
The UAE and other Gulf states are following suit seeing currency diversification as a way to boost investment and protect financial systems.
While these countries are not rejecting the dollar outright, they are clearly hedging against overdependence. They are weighing risks and benefits before formalising permanent currency realignment, according to Muratshina's analysis.
A world without a single hegemon
Ultimately, de-dollarisation in Asia reflects a broader desire to create a multipolar global financial system. Rousseff of the Brics NDB believes that currency diversity in international finance is key to reducing economic asymmetries. It could ease burdens on developing economies, lower costs for imports and external debt and promote fairer global trade terms.
The sentiment is echoed by Benzimra, who noted that while US equities are still strong underlying structural trends—like de-dollarisation—are likely to reshape global investment flows over the long term.
In both economic and political terms, the consensus is growing. Countries in Asia are not just responding to current economic shifts, they are actively shaping a future where financial power is more evenly distributed and national currencies play a more central role in global commerce.