China’s leaders believe the time has come to loosen the dollar’s grip on Asia. The dollar has already fallen 7 percent this year on a trade-weighted basis and suffered its worst start to a year since 1973. By contrast, the yuan has climbed to its highest level since Donald Trump’s re-election. Investors are pouring into Chinese assets, and governments around the world are beginning to experiment with non-dollar alternatives.
Why Beijing sees an opening
De-dollarization has moved from theory to practice. J.P. Morgan describes it as the structural reduction of dollar use in world trade and financial transactions. Several forces are driving the trend. On one side are domestic challenges to America’s reputation as a safe haven, including political polarization, fiscal deficits, and tariff policy. On the other are external developments, particularly reforms in China and new financial systems being built across Asia. Together, these dynamics create the sense that the dollar may be vulnerable at the edges.
BRICS and its ambitions
An expanded BRICS now includes Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE. Collectively, the bloc represents more than 40 percent of the world’s population and over a quarter of global GDP. Within this coalition, China and Russia are spearheading efforts to create BRICS Pay, a decentralized payment system that enables transactions in local currencies rather than dollars. Other measures include national bank networks, reinsurance mechanisms to protect trade, and exploration of new digital payment instruments. China and Russia have already shifted much of their bilateral trade to yuan and rubles, while Iran is selling oil to China in yuan.
Although divisions exist within the bloc, particularly India’s caution, the overall aim is unmistakable: to reduce reliance on the dollar and build an alternative system less vulnerable to U.S. sanctions and oversight.
Beijing’s toolkit
China is moving on several fronts simultaneously.
- Cross-Border Interbank Payment System (CIPS)
CIPS has become China’s answer to SWIFT. More than 1,200 financial institutions across 100 countries have joined. The system remains smaller than SWIFT, but its reach is spreading, particularly in Southeast Asia, where banks are increasingly open to yuan settlement. - Bilateral yuan trade settlement
China has persuaded partners to settle major transactions in yuan. India has used yuan to pay for Russian coal, and Bangladesh used it to pay for a nuclear power plant. Indonesia now regularly uses yuan for oil and coal trades with China. Saudi Arabia is considering yuan-denominated oil contracts, a step that would be highly symbolic if realized. - ASEAN’s local currency push
ASEAN has committed in its 2026–2030 plan to expand local currency settlements and strengthen regional payment networks. Countries such as Singapore, Thailand, and Malaysia have already linked instant payment systems, reducing costs by as much as 30 percent and cutting dependence on U.S. dollar clearing. - The digital yuan
China has launched e-CNY, its central bank digital currency. More than 120 million digital wallets have been opened, with transactions reaching roughly $250 billion. Cross-border tests are underway through the mBridge project with Hong Kong, Thailand, and the UAE. Pan Gongsheng, head of China’s central bank, announced a new international operations center in Shanghai to promote global use of the digital yuan and reduce reliance on what he called politicized and weaponized payment systems.
Selling the idea to Asia
China’s pitch to Asia is part efficiency and part insurance policy. Recent U.S. sanctions against Russia, which cut Moscow off from SWIFT, alarmed many Asian governments. Indonesia’s Joko Widodo warned that Visa and Mastercard could one day be a problem and encouraged Indonesians to use domestic networks. Policymakers in Malaysia, Thailand, and Singapore have made similar arguments, highlighting the risks of overdependence on the dollar.
Mitul Kotecha of Barclays described the change in sentiment, noting that countries now realize the dollar can be used as a weapon in trade and sanctions. This has encouraged both investors and governments to hedge their dollar exposures and consider alternatives.
What the numbers show
The dollar continues to dominate but signs of erosion are visible.
- In foreign exchange markets, the dollar is used in 88 percent of trades, while the yuan accounts for just 7 percent. Around half of global trade is still invoiced in dollars, while the yuan’s share remains small, though it is rising in China’s own cross-border transactions.
- Nearly half of cross-border liabilities are in dollars, and about 70 percent of foreign-currency debt issuance is still dollar-denominated.
- The dollar’s share of global reserves has fallen to just under 60 percent, down from more than 70 percent in 2000. At the same time, emerging-market central banks have doubled their holdings of gold over the past decade.
- Foreign ownership of U.S. Treasuries has dropped from more than 50 percent during the financial crisis to about 30 percent today. J.P. Morgan estimates that every $300 billion reduction in foreign holdings could push U.S. yields up by more than 33 basis points.
- In Asia, more than 80 percent of trade invoices in the ASEAN+3 region are still in dollars, yet local-currency settlement is growing.
Pan Gongsheng has called for a multipolar monetary system, warning that reliance on a single sovereign currency creates systemic risks that can spill into global crises. By building yuan-based systems and digital alternatives, China presents itself as offering stability. Yet critics point out that the yuan is tightly controlled by the Chinese Communist Party and that investors cannot freely move money in or out of China. Analysts at Eurasia Group have argued that China is regionalizing rather than globalizing its currency, focusing on dependent economies rather than broad international acceptance.
Trump’s response
Donald Trump has vowed to defend the dollar aggressively. He warned that any BRICS nation supporting a replacement currency would face 100 percent tariffs. He declared that the idea of BRICS moving away from the dollar is over and told countries considering it to say goodbye to access to the American economy. Supporters say this strategy of negotiating from a position of intolerance has worked before and could again, since BRICS nations would suffer more from losing the U.S. market than the reverse.
Experts caution that dethroning the dollar will not be easy. Francesco Pesole of ING observed that no other currency has the liquidity or depth of bond and credit markets that the dollar provides. Peter Kinsella of Union Bancaire Privée noted that while the dollar has weakened in past cycles, it has always maintained its role as the world’s reserve currency. Former Treasury Secretary Janet Yellen said in late 2024 that she saw no serious threat to the dollar’s status in the near term.
China is not trying to topple the dollar in a single stroke. Instead, it is building alternative systems piece by piece: CIPS for settlements, bilateral yuan trade, ASEAN payment links, and a digital yuan. The numbers show that the dollar remains dominant, but the edges of its supremacy are fraying. As Natasha Kaneva of J.P. Morgan explained, a large and growing proportion of energy is already being priced outside the dollar.
ACZ Editor: China is working hard to de-dollarize and this is being helped along by Trumps tariff policies. While we believe that Trump’s tariff’s have been effective in evening out trade, his use of tariff’s to put pressure on Putin regarding the Ukraine war have been detrimental to relations with a great many countries and run counter to their original purpose. The BRICS countries have formed their own processes, but they know they cannot trust China in matters of currency. They have only bad choices at this point.