dedollarization

Dedollarization, or de-dollarization, denotes processes aimed at reducing the use of the United States dollar in a country’s economy or in global finance. It can refer to efforts to cut dollar dependence domestically or to lessen the dollar’s role in international trade and reserve holdings. There is no universal measure, but common indicators include the share of deposits, lending, and pricing in USD, and the composition of official foreign exchange reserves.

Domestic dedollarization involves substituting the domestic currency for the dollar in pricing, wages, and borrowing. Policy tools include promoting the domestic currency in financial contracts, expanding local-currency banking products, macroprudential measures to limit dollar-denominated lending, and incentives or regulations that favor settlements in local currency. The aim is to reduce currency mismatch and monetary policy transmission through dollar flows.

International dedollarization seeks to shift trade settlements, investment, and reserve portfolios away from the USD. Tactics include promoting invoicing and payments in regional or local currencies, expanding currency swap lines, building regional payment infrastructures, and diversifying official reserves with non-dollar assets. Some governments advocate broader multi-currency settlement arrangements or alternative reserve baskets to reduce exposure to USD risk.

Motivations for dedollarization include reducing exposure to USD exchange-rate shocks, preserving monetary policy autonomy, lowering currency risk for borrowers and exporters, and diversifying reserve holdings. Critics point to the dollar’s deep and liquid markets, the costs and transition risks of changing invoicing and lending practices, potential inflation or financial instability, and the possibility of creating fragmentation in global finance.

Examples vary by country and stage, from deliberate domestic reforms to international diplomacy aimed at broader non-dollar settlement. No major economy has fully eliminated the USD, but several have pursued gradual reductions in its dominance.