Tariffs accelerate the wave of “de-dollarization” in Asia: non-US currency transactions increase, RMB settlement volume soars

The Zhitong Finance App learned that banks and brokers have discovered that demand for foreign exchange derivatives that bypass the US dollar is rising because trade tension has added a sense of urgency to the trend of people de-dollarizing over the years. Financial institutions are receiving more and more requests for related transactions, including hedging transactions that avoid the US dollar and involve currencies such as the Chinese yuan, Hong Kong dollar, UAE dirham, and the euro. There is also a demand for loans denominated in RMB. An Indonesian bank is setting up a RMB counter.

Currently, the vast majority of foreign exchange transactions use the US dollar, even when transferring between two local currencies. For example, an Egyptian company that wants Philippine pesos usually first converts the local currency into dollars and then uses the dollars it receives to buy pesos. But companies are increasingly considering strategies to skip the dollar as a middleman.

Attempts to find an alternative currency are another sign that businesses and investors are abandoning the dollar as a global reserve currency. The dollar suffered a wave of sell-off this week as bets on trade deals shifted. Well-known strategist Stephen Jen, famous for his “dollar smile” theory, warned that there could be an “avalanche” of $2.5 trillion in dollar sell-off, which could damage the long-term appeal of the dollar.

The sharp fall in the US dollar this week reflects short-term fears about trade tensions, which are currently dominating market sentiment. However, structural changes in how and who the dollar is used suggest that de-dollarization will be a long-term trend.

Gene Ma, head of China research at the Institute of International Finance, said, “The increase in transactions between non-US dollar currencies is mainly due to technological developments and increased liquidity. The parties to the transaction feel that the transaction price may not be lower than using the US dollar, so the transaction will naturally increase.”

Accelerating de-dollarization

According to conversations with employees of businesses and financial institutions across Asia, attempts to bypass the dollar are accelerating. A source at a Singaporean commodities trading company said that financial institutions in Europe and elsewhere are increasingly introducing renminbi derivatives that exclude the US dollar. Several people familiar with the matter said that increasingly close commercial ties between mainland China, Indonesia and the Gulf region are spurring demand for non-dollar hedging.

A trader at a Singaporean financial institution said European car manufacturers are driving up demand for EUR/RMB hedging. In Indonesia, a foreign bank will set up a dedicated team in Jakarta this year to meet the growing demand from local customers to facilitate transactions between Indonesian rupiah and RMB, according to a company executive.

The gradual disappearance of the dollar is eroding one of the cornerstones of global trade. For decades, it has been everywhere, from debt financing in emerging markets to trade settlements. According to a recent estimate, transactions using the US dollar as an intermediate currency account for about 13% of its daily trading volume. But before US President Trump's unpredictable trade practices forced people to completely rethink the dollar's place in the world, the global use of the dollar was already under threat.

Over the years, China has been working hard to promote the use of the renminbi internationally, signed currency settlement agreements with Brazil, Indonesia and other countries, and promoted the use of the renminbi globally. The BRICS Group, made up of emerging market countries, has discussed the dollarization of the past. The outbreak of the Russian-Ukrainian war in 2022 sparked interest in some countries abandoning the dollar. Previously, sanctions against Moscow raised questions about whether the dollar had become a financial weapon.

What is certain is that few market participants doubt that China will gradually abandon its dollar reserves. First, there are no realistic candidates to replace it. Data from global payments company Swift shows that the use of the euro in global transactions has declined in the past two years, while the renminbi is still a novelty for trade that does not directly involve the world's second-largest economy.

The attractiveness of the RMB is rising

According to data from global payments company Swift, RMB accounted for about 4.1% of global payments in March, far lower than the 49% share of the US dollar used globally. But some payments in China are made through its own system, which is growing rapidly. According to data, the annual transaction volume of the cross-border interbank payment system reached about 175 trillion yuan in 2024, an increase of more than 40% over the previous year.

In March of this year, the proportion of Chinese investors and trading companies using RMB for cross-border transactions reached a record level. Chinese exporters are also speeding up the conversion of US dollars into renminbi, reversing the previous trend where exporters were sitting on US dollar revenues due to concerns about the weakening of the RMB.

According to data, as of March 2025, China's exports to Southeast Asia have increased by more than 80% in five years, while exports to the United Arab Emirates and Saudi Arabia have more than doubled. This far exceeds the growth rate of the country's exports to the US and the EU.

Although renminbi-based hedging is often more expensive than dollar-based hedging, low interest rates on basic RMB loans may mean that the overall cost is still attractive to borrowers.

Alicia Garcia Herrero, chief Asia-Pacific economist at the French Foreign Trade Bank, said: “You can finance yourself with one-third of the cost of financing in dollars. However, the RMB also has limitations because there isn't much offshore liquidity.”

The hedging cost of the US dollar against major currencies has risen over the past year, surging on the eve of the US presidential election in November last year and in April of this year, respectively. Demand from options traders to hedge against the dollar's decline has surged.

Tariff-related dollar fluctuations clearly indicate that it is not just China and other major economies that are weakening the dollar's position in the world. Trump sent mixed signals on the exchange rate issue, but he complained about the strengthening of the dollar and appointed economist Stephen Miran to the top position. He once wrote an article about a radical change in the dollar-based world order.

Trump's approach to trade, his apparent willingness to abandon long-standing practices, and his repeated criticism of the Federal Reserve all reinforce the feeling that the dollar's dominance in the global economy is facing the greatest threat in decades.

Deutsche Bank analysts, including Oliver Harvey, wrote in a recent report: “Given the extraordinary durability of the dollar, it seems that a truly epoch-making shift in the international environment is needed to replace the dollar. But this transformation is taking place at greater risk.”