Asia Reduces Dollar Reliance Amid Policy Shifts, Trade Trends

Asia is gradually reducing its reliance on the US dollar, driven by geopolitical uncertainties, shifts in monetary policy, and efforts to mitigate currency risk. The Association of Southeast Asian Nations (ASEAN) has unveiled its Economic Community Strategic Plan for 2026–2030, which aims to promote more trade and investment using local currencies. The plan emphasizes steps to reduce the impact of exchange-rate fluctuations by encouraging settlements in home currencies and enhancing payment links across the region.

This trend is most evident in Asia but extends globally. The dollar’s share of world foreign-exchange reserves has decreased from over 70 percent in 2000 to 57.8 percent in 2024. Notably, the dollar experienced a sharp sell-off in April due to uncertainty around US policy moves. Since January, the trade-weighted dollar index has dropped by more than 8 percent.

Experts note that de-dollarization is not a new phenomenon. What has changed is the growing recognition that the dollar can be used as a tool or weapon in trade disputes and sanctions. This realization has prompted investors and policymakers to rethink their heavy reliance on the dollar. Asian governments and businesses are now eager to shift more transactions into their own currencies to lower their exposure to dollar swings. This shift is largely driven by a desire to cut risk by using local money as the main medium of exchange.

Two main factors are fueling this push in ASEAN: households and firms are converting US dollar savings back into local bills, and large investors are increasingly hedging their foreign-currency exposures. Both trends contribute to the dollar’s diminishing dominance in the region. Beyond Southeast Asia, the BRICS countries, particularly China and India, have been developing their own cross-border payment platform to bypass traditional networks and reduce dollar dependence. China has also intensified efforts to settle bilateral trade directly in yuan.

De-dollarization is described as an ongoing, slow process. Central-bank reserve data show a gradual fall in dollar holdings, and trade-transaction records reflect a rising number of local-currency deals. Economies such as Singapore, South Korea, and China hold significant foreign assets, giving them more scope to bring earnings home in their own money. Asian investors are guarding against dollar volatility by hedging. When investors hedge their dollar positions, they sell greenbacks and buy local or other currencies, boosting the latter’s value against the dollar.

This raises the question: Is this shift away from the dollar temporary, or is it the start of a long-term change? It may still be cyclical unless the United States resorts to harsher sanctions that make central banks wary of holding large dollar balances. Despite these developments, industry observers caution that the dollar’s role as the world’s main reserve currency is hard to replace. For now, the greenback remains a major part of global finance, and even as it slips, it still outpaces all other currencies by a wide margin.