Global de-dollarisation accelerates as dollar weakens; rupee falls amid trade, reserves and pushing India toward local-currency resilience

The United States is the most indebted country in the world. Its annual budget deficit is close to $2 trillion — the net borrowing requirement of the US Treasury for this year. On top of that is the need to repay older debt maturing this year, another $9 trillion. The gross borrowing requirement thus exceeds $10 trillion in 2025. This is funded by American and foreign investors, including the world’s foreign exchange reserves. Imagine the stress this puts on global dollar surpluses and savings. To attract financial flows toward US bonds, the risk-free interest rate offered is quite high — currently close to 5 percent.

For any other country, such a high debt load would have led to a downgrade of its sovereign rating. But this is the United States, and its currency remains the world’s reserve standard. It continues to attract capital from across the globe. However, the allure of dollar assets is waning. The share of global foreign exchange reserves held in dollar assets has declined from 72 percent to 58 percent in the past twenty years — a clear downward trend.

This is why the world is talking about “de-dollarisation.” Its effects are visible this year. The dollar index (DXY), which measures the dollar’s strength, fell 11 percent in the first half of 2025 — its steepest six-month slide in fifty years. Another significant development is the rise of gold. For the first time, the value of gold reserves now exceeds that of US dollar assets. This headline hides a subtler truth. According to the International Monetary Fund, 58 percent of disclosed global forex reserves are still in dollars as of 2024 — far ahead of any rival currency. But thanks to a historic gold rally, the market value of official gold holdings has overtaken that of US Treasuries currently in global reserves. While this is not the same as gold surpassing all dollar assets in reserve portfolios, it is symbolically powerful.

The political catalyst that pushed many reserve managers to rethink their dollar exposure was the freezing of Russian sovereign dollar assets after the 2022 invasion of Ukraine, followed by G7 and EU moves to channel profits from those assets to finance Ukraine. Even without outright seizure, the message was clear: dollar-centric reserves carry geopolitical risk. This has accelerated diversification — not only into other currencies but, more visibly, into gold.

All three pillars of dollar power — trade invoicing, cross-border clearing, and reserve management — are seeing real, albeit uneven, diversification. Politics has amplified this trend. When BRICS leaders floated non-dollar invoicing ideas earlier this year, President Trump publicly threatened tariffs as retaliation — essentially using trade policy to defend dollar primacy. SWIFT remains the backbone of dollar clearing via New York, but alternatives are gaining ground. China’s CIPS has expanded volumes and participants, while BIS-backed projects such as mBridge have successfully executed live cross-border CBDC transfers among central banks in Asia and the Gulf.

India has tried to turn this de-dollarisation momentum into concrete trade arrangements. New Delhi and Moscow spent much of 2023–24 exploring rupee settlements, but progress was slow because Russia was reluctant to hold large, non-convertible rupee balances. The Reserve Bank of India has since offered more flexibility, recently allowing surplus funds in vostro accounts to be fully invested in Indian government securities — giving partners like Russia a safer home for their rupee stock. The main challenge in scaling up rupee trade is the counterparty’s appetite for Indian exports and rupee-denominated assets.

India is also experimenting with the RBI’s e-rupee pilot projects and extending UPI to foreign markets. If compliant, bilateral CBDC or local-currency settlements can be stitched together with key energy and import partners, some share of trade could bypass dollar invoicing, clearing, and settlement. But this remains a work in progress. The primary reason rupee trade will expand only gradually is India’s heavy reliance on the US market as an export destination. The United States is India’s single largest buyer of merchandise goods and remains central to services exports. This concentration makes it rational for Indian firms to keep the dollar at the core of pricing, hedging, and funding — even as they experiment with local-currency deals elsewhere.

Despite the dollar’s weakness against a basket of major currencies, the rupee has weakened against the dollar, hitting record lows near 88.7. This means it has lost even more ground against the euro and the yen. This shows two things: global dollar softness can coexist with rupee weakness, and India’s external price signals are being shaped as much by domestic factors (tariffs, portfolio outflows, oil) as by the global dollar cycle. President Trump is pressuring India to cut purchases of Russian crude. This is the main reason for the punitive 50 percent tariffs on Indian goods. He is also urging the G7 to penalise India. Consequently, the rupee has slid to fresh lows, as markets price in weaker export earnings and persistent dollar demand from importers.

For India, de-dollarisation is not a crusade against the dollar but a strategy to build resilience and bargaining power. In practice, this means:

1. Targeted local-currency invoicing where counterparties genuinely want Indian goods or rupee assets.

2. Wider, safer channels for holding and deploying rupees abroad (for example, the RBI’s vostro account reforms).

3. Continued reserve diversification, including gold and high-quality non-dollar assets.

4. Investing in payment infrastructure, including CBDC-based systems, so Indian banks and firms can bypass chokepoints when geopolitics turn rough.

None of this will displace the dollar’s dominance anytime soon. But it does reduce single-point vulnerability.

There is one final paradox. A weaker dollar helps US exporters — something President Trump says he wants — yet Washington continues to defend dollar centrality in invoicing, clearing, and reserves, sometimes with trade threats that make the dollar stronger. For India, the correct response is not ideological. It is to keep options open, deepen domestic capital markets, and make the rupee more attractive to foreigners — offering scale, liquidity, and predictable rules. De-dollarisation, done right, is not about abandoning the dollar. It is about creating options.