Key Points

"While the dollar’s dominance may be contested, a complete de-dollarisation will still take a long time," the report from ratings firm CareEdge Ratings said.

Nonetheless, the early indicators point toward a gradual but undeniable shift away from dollar dependency, it said

CareEdge characterised India’s measures to internationalise the rupee as nascent, highlighting its bilateral currency swaps, expanded trade settlement via vostro accounts, integration of UPI with global payment platforms, and the promotion of rupee loans for non-residents in neighbouring countries.

The ratings firm reported that foreign holdings of dollars have reduced significantly from historical levels, noting that central banks are diversifying their reserves, with gold purchases reaching new highs.

The dollar’s supremacy in global financial markets has long been sustained by a positive "network effect" and the "absence of alternatives", the report noted.

CareEdge, however, maintained that major emerging market currencies encounter challenges, such as the lack of full capital-account convertibility for the Indian rupee and Chinese renminbi, hindering their potential to replace the dollar.

"Despite its limitations, China has over the past decade actively pursued measures to internationalise the renminbi. Debate on de-dollarisation has re-emerged in recent years, particularly after the Russia–Ukraine conflict, when punitive actions were taken via the weaponisation of the currency," the report noted.

China is advancing renminbi internationalisation by enhancing financial integration regionally, expanding currency swap agreements, promoting bilateral trade settlement in renminbi and developing the Cross-Border Interbank Payment System.

- IANS