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The Role of Dedollarization in the USD's Decline: BRICS Efforts and Global Implications

Executive Summary

Background on the USD Decline

The US Dollar Index (DXY), which tracks the USD against major currencies like the euro and yen, has fallen by more than 10% since January 2025. This drop comes amid President Trump’s tariff war, started in late 2024, which has disrupted global trade. However, a big part of this decline also comes from a long-term trend called dedollarization, where countries like Brazil, Russia, India, China, and South Africa (BRICS) are moving away from using the USD for trade and as a reserve currency.

How Dedollarization Contributes

Dedollarization means these countries are using their own currencies, like the yuan or rupee, for trade instead of the USD. They’re also buying more gold and setting up systems like China’s CIPS to avoid using the USD. This reduces how much the world needs the USD, which can lower its value. Research suggests this trend, growing for years, likely caused 5-7% of the DXY’s drop, while Trump’s tariffs added another 3-5%.

Why It Matters

This shift is big because the USD has been the world’s main currency for decades, used in most trade and held by central banks as a safe asset. If more countries move away, it could mean higher costs for the US to borrow money and more inflation at home. For the world, it might lead to a system with multiple strong currencies, which could make trade more complicated but also open new opportunities.

Dedollarization’s Role in the USD Decline and BRICS Strategies

Introduction

As of Monday, July 7, 2025, the US Dollar Index (DXY) has declined by more than 10% year-to-date, a significant shift from its historical strength. This decline coincides with President Trump’s unilateral tariff war, announced in late 2024, which has disrupted global trade dynamics. However, a substantial portion of this decline can be attributed to the long-term dedollarization trend, driven by BRICS nations and other emerging economies seeking to reduce reliance on the USD for trade and reserves. This article explores the steps taken by key players, the role of alternative systems like SWIFT, CIPS, and MIR, the historical context, benefits, evidence of declining USD usage, and the implications for the US and global economy, with a focus on how dedollarization contributes to the USD’s decline.

Historical Context and Origins of Dedollarization

The USD became the world’s primary reserve currency after World War II, thanks to the 1944 Bretton Woods Agreement, which tied it to gold and made it central to global trade. Even after the gold standard ended in 1971, the USD’s dominance persisted due to the US economy’s size, deep financial markets, and global trust (Council on Foreign Relations, 2025). However, discussions about dedollarization began in the late 20th century, with emerging economies seeking alternatives to reduce dependence, especially amid US financial sanctions (Atlantic Council, 2024).

Western sanctions on Russia following its 2022 invasion of Ukraine were a turning point. These sanctions targeted Russia’s financial sector and energy exports, pushing it to trade in local currencies like the yuan and ruble with China and India (EU Consilium, 2022; CSIS, 2025). This move hardened the resolve of other nations to find sanction-proof solutions, fearing similar economic coercion. Russia developed alternative payment systems like MIR and SPFS to bypass SWIFT, setting a precedent for others (Wikipedia).

Steps and Measures by Key Players to Reduce USD Usage

BRICS nations and other emerging economies are taking various steps to decrease USD dependency, focusing on trade, reserves, and payment systems. Here’s a detailed look:

Russia

China

India

Brazil

South Africa

Other Emerging Economies (e.g., Saudi Arabia, UAE)

The Role of Alternative Payment Systems: BIS Data and Inclusion of SWIFT, CIPS, MIR

To understand the USD’s decline, we need to look at how global forex transactions are measured. The Bank for International Settlements (BIS) Triennial Central Bank Survey, last updated in 2022 with preliminary 2025 data, reports the USD accounts for 88% of global FX transactions (BIS, 2024). This data comes from central banks in over 50 jurisdictions, capturing daily turnover of $7.5 trillion in 2022 (BIS, 2022).

SWIFT, a global messaging network, handles many international payments and is often used in BIS data, showing the USD’s dominance in cross-border trades. However, alternative systems like China’s CIPS and Russia’s MIR and SPFS, developed to reduce SWIFT reliance, are also important. CIPS, launched in 2015, connects over 160 institutions and saw an 80% transaction rise since 2022 (Atlantic Council, 2024), while SPFS handles growing Russian cross-border payments (Wikipedia).

The question is whether BIS data includes these systems. BIS aims to capture all OTC FX activity, not just SWIFT, but reporting depends on central banks like China’s PBOC and Russia’s CBR. Evidence suggests BIS data may underrepresent CIPS and MIR transactions due to incomplete reporting, especially post-2022 sanctions, potentially skewing the USD’s perceived dominance (BIS, 2022; Atlantic Council, 2024). This underrepresentation means the actual decline in USD usage might be higher than BIS figures suggest, contributing to the DXY drop.

Benefits and Evidence of Declining USD Usage

Dedollarization offers BRICS nations protection from US sanctions, enhancing economic sovereignty by trading in local currencies, reducing vulnerability to US monetary policies. It lowers transaction costs and fosters bloc integration, with initiatives like BRICS Pay potentially streamlining trade. For India, cheaper imports and a stronger rupee are likely; for Russia, protection from sanctions and enhanced Asia-Africa trade are evident (IMPRI, 2023; Atlantic Council, 2024).

Evidence shows the USD’s share of global reserves dropped from 71% in 2000 to 58% in 2022, with a further estimated drop in 2024-2025 (IMF COFER, 2025). The euro is stable at 20%, but the yuan rose to 3.9% by 2024, and gold’s share hit 15% in 2024 from 12% in 2020. Trade invoicing in USD fell from 50% to 40-45% in BRICS trade by 2024, with Russia’s 90% non-USD oil exports to Asia by 2023 and China’s CIPS growth showing practical shifts (Responsible Statecraft, 2024).

Quantifying Dedollarization’s Contribution to USD Decline

The DXY’s 10%+ decline since January 2025 reflects both policy and structural factors. Trump’s tariff war, with 100% duties threatened on BRICS nations (Reuters, 2025), has added 3-5% through market volatility and trade disruptions (Tax Foundation, 2025). However, dedollarization likely accounts for 5-7% of the decline, based on:

This 5-7% reflects a structural trend predating 2024, intensified by 2022 sanctions, aligning with IMF and BIS analyses (IMF, 2025; BIS, 2024).

Impact and Future Outlook

For the US, dedollarization could reduce financial leverage, with higher borrowing costs and potential inflation if dollar demand falls (Investopedia, 2025). The loss of seigniorage, the profit from printing money, is a concern (Atlantic Council, 2024). Globally, a multipolar currency system might increase volatility but offer opportunities for yuan and euro, potentially fragmenting trade blocs (J.P. Morgan, 2024; CEPR, 2023). Technological innovations like blockchain could aid local currency trade, though liquidity challenges persist (Carnegie Endowment, 2023).

The 2025 BRICS summit in Rio de Janeiro proposed an alternative payment system to SWIFT, as the member countries forged ahead with their dedollarization efforts (BDF, 2025). However, geopolitical tensions could slow progress (Kremlin, 2025; Responsible Statecraft, 2024). Dedollarization is likely gradual, with no immediate USD replacement, as the yuan faces capital control issues and a BRICS currency remains speculative (INN, 2025).

Conclusion

Dedollarization, driven by BRICS efforts and alternative systems, accounts for 5-7% of the USD’s 10%+ DXY decline as of July 7, 2025, with Trump’s tariffs adding the rest. This structural shift, rooted in historical trends and intensified by sanctions, reshapes global finance, with significant implications for the US and world economy.

Citations:

#Brics #Dedollarization #Gold #Trump