De-dollarisation Puts Pressure on US Dollar Dominance in Global Trade
De-dollarisation refers to efforts by countries to reduce their dependence on the US dollar in international trade, finance, and foreign exchange reserves. The trend has gained renewed attention as BRICS nations and several emerging economies explore the use of local currencies and alternative payment systems for cross-border transactions.
The dominance of the US dollar in global trade and commodity markets is being challenged by rising geopolitical tensions, sanctions-related concerns, and the desire of emerging economies to diversify their reserves. Most commodities, including crude oil, natural gas, gold, industrial metals, and agricultural products, are priced and traded in dollars.
One of the biggest advantages of de-dollarisation is reduced dependence on a single currency. Countries can lower their exposure to dollar shortages and exchange-rate fluctuations by conducting trade in their own currencies. This also reduces transaction and hedging costs, making international trade more efficient.
The impact of de-dollarisation on commodity markets could be both positive and negative. On the one hand, local-currency trade can reduce dependence on the dollar and insulate commodity-importing countries from sharp currency fluctuations. However, moving away from a common settlement currency could increase market fragmentation and create greater currency-related volatility.
Gold is likely to benefit the most from de-dollarisation as central banks continue to diversify their reserves away from dollar-denominated assets. According to the World Gold Council, central banks purchased a record 1,136 tonnes of gold in 2022, followed by 1,051 tonnes in 2023 and 1,045 tonnes in 2024.