The financial and economic impact of Dedollarisation
Peter McGahan
Monday 7th April, 2025.
THIS is Part Two in our series - the potential global shift away from the US Dollar.
Back in the 1990s, the dollar held over 70 per cent of global foreign exchange reserves. Today, it’s down to 58.4 per cent, and still falling. That’s not a collapse, but it’s a message.
Some nations are hedging their bets.
Take central banks. The old habit was to stack US Treasuries like firewood before winter. Geopolitical frostbite - think sanctions, trade wars, or frozen reserves - has countries thinking twice about that and what currency they buy or trade through. So, they’re buying gold. Russia, China, India, even Turkey have been filling their vaults with bullion, not US treasury bonds. Gold doesn’t come with conditions. And neither does it get frozen by Washington – ah, I forgot Venezuela’s gold.
Then there’s oil. The old petrodollar arrangement meant oil was priced and paid for in dollars. That’s changing. China now settles energy deals with Russia in yuan. India buys Russian crude in rupees. Saudi Arabia, the original petrodollar pillar, is reportedly open to accepting yuan. That’s like your local shop suddenly taking euros instead of pounds - it tells you something’s shifted.
If the G7 was the old guard, BRICS - Brazil, Russia, India, China, and South Africa are the challengers. And they’re not just grumbling from the sidelines. They’re building a new pitch.
The BRICS strategy is to replace dollar infrastructure with their own infrastructure. Think of it like switching from petrol cars to electric - they’re building the whole ecosystem: payment rails, reserve funds, and development banks.
The BRICS Contingent Reserve Arrangement is like the IMF, but without the dollar strings. The New Development Bank (their version of the World Bank) has already lent over $30 billion, mostly in local currencies. And then there’s BRICS Pay - a multi-currency digital settlement platform that could sidestep SWIFT altogether.
They’re not asking permission. They’re creating an alternative.
The Chinese yuan is becoming more than just a regional currency. It’s now in the IMF’s SDR basket (with a 12 per cent weight) and is increasingly used in Belt and Road contracts, especially as China throws its digital yuan (e-CNY) into the mix.
Yes, China has capital controls, and trust isn’t exactly sky-high, but they’ve got trade volume, infrastructure, and ambition.
Gold? Well, it’s the oldest form of financial insurance. In a world where sanctions can lock you out of your own reserves, gold has a quiet charm. It doesn’t tweet, but it doesn’t vanish either.
Crypto, meanwhile, is the wild child - especially in countries hit by inflation or sanctions. Bitcoin’s been a lifeline in Venezuela and a loophole in Iran. But for central banks? It’s still a step too volatile. Some are watching stablecoins instead - crypto’s sober cousin.
Here’s where it gets interesting. Over 130 countries are exploring Central Bank Digital Currencies (CBDCs), and 11 have already launched. China leads the pack. Its e-CNY is already live, programmable, and being tested in cross-border transactions via Project mBridge (more next week) with Thailand, the UAE, and others.
CBDCs aren’t just fancy money, they’re programmable, traceable, and potentially sanction-proof. They’re being designed to work around the dollar. And if enough countries adopt their own, we could be heading into a fragmented, multi-CBDC world.
That might sound messy to some, but it’s strategic.
Can Other Currencies Step Up?
Yuan: The frontrunner, but it’s hobbled by capital controls.
Euro: Structurally strong but lacks military clout and political unity.
Yen: Trustworthy but aging and shrinking.
Rupee: Regionally relevant, globally limited - but watch this space.
Each has promise, but none (yet) has the full toolkit, nor might they.
What Does It All Mean?
We’re not talking about the end of the dollar. This isn’t a financial funeral. It’s more like retirement planning for a system that’s been overworked. The dollar’s dominance is eroding - not by disaster, but by design.
Nations want options. And they’re building them. Quietly. Deliberately. Systematically.
Next time, we’ll look at the plumbing behind this shift, ie: the digital rails being laid beneath our feet. Until then, remember it’s not about who shouts the loudest. It’s about who’s still standing when the storm hits.
And gold, it seems, doesn’t mind the rain.
If you have a financial question, please call 01872 222422 or email info@wwfp.net
Peter McGahan is the Chief Executive Officer of Independent Financial Adviser Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
