De-Dollarization Without a Common Currency

By Shaik Azhar

The debate over de-dollarization has gained renewed momentum in recent years. Geopolitical tensions, sanctions, supply chain disruptions, and excessive dependence on a dollar-centric trade have prompted countries to rethink their reliance on the United States dollar. Within this larger conversation, the BRICS grouping has emerged as an important forum for exploring alternatives to the existing monetary order.

Yet, much of the discussion surrounding BRICS has been dominated by a single idea; the creation of a common BRICS currency similar to the euro. Such comparisons often obscure the realities confronting BRICS. The European monetary union was the culmination of decades of political integration, economic convergence, and institutional coordination, while BRICS, by contrast, consists of countries with differing economic structures, strategic interests, and financial systems. It lacks a common central bank, a unified fiscal architecture, and the political will necessary to sustain a shared currency. While creating a new currency is appealing, such a proposal may be neither practical nor necessary. Rather than pursuing a monetary union, BRICS could achieve many of the same objectives through a more modest, flexible, and realistic framework built around local-currency settlements and multilateral clearing arrangements.

A common currency may not be the right question. The more pertinent one is whether BRICS can reduce its dependence on the dollar while preserving economic autonomy and avoiding the institutional burdens of a monetary union. A multilateral local-currency settlement mechanism may offer precisely such a path.

The mechanics of local-currency trade

Today, even trade between two countries that do not directly involve the United States is often settled in dollars. This compels countries to maintain large dollar reserves, exposes them to exchange-rate conversion costs and increases their vulnerability to geopolitical pressures embedded within the global financial system.

A local-currency settlement framework would allow countries to trade directly using their national currencies. India could buy Russian goods in rupees or rubles, while Russia could use the accumulated rupees to purchase Indian goods or conduct business with other BRICS countries willing to accept them. This would lead to currency circulation in regional economies.

Such a system would preserve monetary sovereignty while reducing transaction costs and reserve dependencies. More importantly, it would avoid the immense institutional burden associated with creating a common currency.

However, the immediate challenge lies in designing mechanisms that can sustainably manage trade imbalances and currency accumulation. India, for instance, imports substantially more from China than it exports. Over time, China would accumulate large quantities of Indian rupees. If those balances cannot be productively deployed, China may become reluctant to continue trade in local currencies. India’s recent experience with Russia has demonstrated the limitations of local-currency trade when surplus balances cannot be efficiently recycled or redeployed.

This is the central dilemma confronting all de-dollarization efforts. A currency is valuable not merely because it facilitates transactions but because it can store value, provide liquidity, and support multiple economic activities, the dollar enjoys these advantages because it is backed by global trust, deep financial markets, and institutional credibility. Rather than attempting to replicate the dollar overnight, BRICS could develop mechanisms to manage these disparities.

Threshold-based liquidity recycling

One possible way could be establishing a threshold-based settlement framework. Member countries could hold each other’s currencies up to a predetermined threshold. Once those balances exceed the threshold, surplus reserves could be invested in sovereign bonds, infrastructure projects, routed through a multilateral clearing institution, or, as a final option, converted into internationally accepted reserve currencies. Among these, bond-market recycling appears promising.

The existing dollar system itself offers an important lesson. Countries that run trade surpluses with the United States frequently reinvest their dollar reserves into American financial markets, particularly US Treasury bonds. This arrangement sustains global demand for dollars and finances American deficits.

A similar architecture could gradually emerge within BRICS. Instead of allowing excess local currency to remain idle, member countries could reinvest them within partner economies through sovereign bonds, infrastructure projects, renewable energy investments, or development funds. This mechanism can transform surplus currency holdings from a liability into productive capital while strengthening economic interdependence among member states.

For India, this could deepen domestic financial markets and gradually strengthen demand for the rupee. For BRICS as a whole, it would reduce excessive reliance on external financing.

Institutional foundations

Such a system would also require institutional support. A dedicated multilateral clearing union could record trade balances and periodically settle net imbalances among countries through bonds, reserve assets, or currency swaps rather than requiring immediate settlement in hard currency for every transaction.

While existing bilateral mechanisms, such as India’s Special Rupee Vostro Accounts, could serve as a foundation, a BRICS multilateral architecture would be necessary to operationalise a threshold-based settlement system across BRICS.

This idea is not entirely modern. Economist John Maynard Keynes proposed an international clearing union during the Bretton Woods negotiations in 1944. It was based on the idea that both surplus and deficit countries must share responsibility for maintaining systemic balance. Although his proposal was turned down, the underlying idea remains relevant.

The geopolitical test

The implications of such a system extend far beyond economics and into geopolitics. The success of any alternative monetary architecture within BRICS will ultimately depend on political relations among its members, particularly between India and China. Despite trust deficits brought on by border disputes, strategic competition and divergent geopolitical agendas, a certain level of pragmatic collaboration between Asia’s two largest economies will remain necessary for long-term monetary arrangements in the BRICS.

A durable local-currency settlement system cannot be built solely on economic incentives; it also requires political trust, institutional predictability, and a shared commitment in reducing external vulnerabilities. At the same time, expectations must remain realistic. The dollar’s dominance with unmatched liquidity, deep capital markets, and institutional trust cannot be replicated overnight. De-dollarization, therefore, should be understood not as a revolutionary project but as a gradual process of diversification.

The future of BRICS monetary cooperation may not lie in a common currency but in building an ecosystem of interoperable national currencies supported by clearing institutions, bond-market integration, and managed convertibility mechanisms. If successful, such a framework would demonstrate that de-dollarization need not begin with a common currency, but with the gradual construction of institutions that expand economic choice, strengthen collective resilience and lay the foundations for a more balanced and multipolar international monetary order.

Shaik Azhar is a postgraduate in Politics and International Relations from Pondicherry University. His research interests include geopolitics, international political economy, intelligence studies and strategic affairs. He previously worked as a Research Intern at the Centre for Air Power Studies (CAPS), New Delhi.

Eurasia Review