“De-dollarization is gaining momentum amid geopolitical fragmentation, but the US dollar continues to dominate the international monetary system. Discuss with reference to India.”
Introduction
The international monetary system is witnessing gradual diversification away from excessive dependence on the US dollar through local-currency settlement, reserve diversification, gold accumulation and alternative payment systems.
Drivers
• Geopolitical fragmentation
• Sanctions risk
• US monetary-policy spillovers
• Exchange-rate volatility
• Desire for strategic autonomy
• Rise of emerging economies
• Digital payment technology
India
• SRVA mechanism
• Rupee trade settlement
• Local-currency arrangements
• Rupee internationalisation
• CBDC/e₹
• BRICS payment cooperation
• August 2026 easing of rupee export-payment rules
Challenges
• Dollar network effects
• Deep US financial markets
• Limited rupee convertibility
• Need for greater rupee liquidity
• India’s trade deficit with several partners
• Need for stable macroeconomic fundamentals
Conclusion
The emerging trend is unlikely to be a sudden “end of the dollar”; rather, it is a transition from dollar dominance towards a more diversified and multipolar international monetary system. For India, the appropriate strategy is not to abandon the dollar but to reduce excessive dependence by internationalising the rupee, strengthening domestic financial markets and building resilient cross-border payment systems.
August 30, 2026 2.6K 7
