Growing Use of Local Currencies in Global Trade Could Challenge US Dollar’s Dominance: Report

NEW DELHI– An increasing number of countries are turning to local currencies for cross-border trade, a shift that could gradually weaken the U.S. dollar’s dominant position in the global financial system, according to a report examining changing international payment practices.

The trend is gaining momentum across Asia, where governments are expanding arrangements that allow businesses to settle international transactions in their national currencies without relying on the U.S. dollar as an intermediary.

An article published by India Narrative identified Indonesia as one of the countries making significant progress in adopting local currency transactions.

Indonesia has established local currency transaction agreements with Malaysia, Thailand, China, Japan, South Korea and the United Arab Emirates, while pursuing similar arrangements with additional trading partners.

According to Bank Indonesia, transactions conducted through its local currency transaction framework reached the equivalent of $49.4 billion during the first eight months of 2026, compared with $25.7 billion for all of 2025.

The figures indicate that transaction volumes through the framework in just eight months were nearly double the total recorded during the previous year.

China is also pursuing greater international use of its currency, the renminbi, through bilateral trade agreements and cross-border payment systems.

Meanwhile, members of the BRICS grouping are exploring ways to expand trade settlements using their national currencies, reflecting broader interest in reducing reliance on traditional international payment arrangements.

Similar developments are taking place outside Asia.

In Europe, the euro plays a central role in trade among European economies, while Latin American countries have long used regional and bilateral payment mechanisms to facilitate commerce.

African nations have developed the Pan-African Payment and Settlement System, known as PAPSS, to support cross-border transactions in local currencies.

The report identified several economic and strategic factors behind the growing adoption of local currency settlements.

One potential benefit is lower transaction costs, as businesses can avoid converting payments into U.S. dollars before exchanging them into another currency.

Local currency arrangements may also help companies manage certain foreign exchange risks, although their effectiveness depends on factors such as currency liquidity and exchange-rate volatility.

Geopolitical developments are providing another incentive for countries to diversify their international payment systems.

Trade disputes, financial sanctions and uncertainty surrounding economic policies in major economies have encouraged governments to explore alternative currency arrangements that offer greater flexibility in conducting international business.

Beyond reducing transaction costs, the shift could have implications for the United States and its financial influence.

The report suggested that wider adoption of local currency settlements could gradually reduce demand for U.S. dollars in certain areas of international trade.

Over time, a sustained decline in dollar-based transactions could also affect global demand for American financial assets, including U.S. Treasury securities.

Such changes could potentially diminish some of the economic advantages the United States enjoys because of the dollar’s central role in international commerce and finance.

However, the growing use of national currencies in bilateral trade does not necessarily mean the dollar will lose its dominant position in the near future.

The report nevertheless indicates that countries are increasingly seeking more diversified payment arrangements, a development that could reshape aspects of the international financial system over the longer term. (Source: IANS)