Can India Thrive in a De-Dollarized World?

US President Donald Trump has once again lashed out at BRICS nations, threatening 100% tariffs on their exports if they attempt to move away from the US dollar.

His latest tirade underscores American anxieties over de-dollarization, a shift that could have far-reaching consequences for global trade and economic power structures.

For decades, the US dollar has been the bedrock of global trade, its dominance unquestioned despite periodic efforts to reduce reliance on it. Now, with the BRICS bloc—of which India is a key member—pushing for trade in local currencies, the idea of a de-dollarized world is gaining traction. But is it truly possible? And what would it mean for India and, by extension, the US?

India, like other emerging economies, has a vested interest in reducing dependency on the dollar. The dominance of the greenback exposes countries to external economic shocks, such as the impact of US Federal Reserve policy changes on exchange rates and capital flows. When the Fed hikes interest rates, capital often exits emerging markets, weakening local currencies and triggering inflationary pressures.

Furthermore, de-dollarization is increasingly seen as a geopolitical necessity. The weaponization of the dollar through sanctions—especially against Russia—has prompted countries to seek alternatives. India has already explored rupee-based trade with Russia and is expanding bilateral trade agreements that bypass the dollar.

Is it feasible?

Despite these efforts, a fully de-dollarized global economy is unlikely in the near future. The dollar accounts for nearly 60% of global foreign exchange reserves and dominates international trade. Even within BRICS, trade imbalances and economic disparities pose a challenge to seamless transactions in local currencies. China’s yuan, while an alternative, comes with geopolitical baggage with which India may not be comfortable. A common BRICS currency remains more of an ambition than a reality.

For India, reducing dollar reliance is pragmatic but complete detachment is impractical. The country relies on the dollar for crude oil imports, external debt transactions, and foreign direct investment (FDI). Any attempt to move away must be gradual and strategic, focusing on trade diversification, strengthening the rupee in global markets, and building robust currency swap agreements.

Impact on the US

The US, and particularly former President Donald Trump, has been vocal in resisting de-dollarization efforts, viewing them as a direct challenge to American economic influence. Trump’s threats of 100% tariffs on BRICS nations reflect a broader fear: If the dollar loses its supremacy, the US may struggle to finance its deficits and maintain its economic leverage.

However, the real challenge for the US is not just BRICS nations seeking alternatives but the broader global trend of exploring multipolar financial structures. Even allies of the US are seeking greater financial autonomy, with the European Union discussing alternatives to SWIFT and the Middle East increasingly trading in non-dollar currencies.

Path Forward

For India, the best approach is a balanced one—reducing dollar dependency where feasible while maintaining its integration in the global economy. This means pushing for rupee-based trade agreements, strengthening the international acceptance of the rupee, and developing resilient financial institutions.

A fully de-dollarized world may remain elusive, but an era of reduced dollar dominance is certainly on the horizon. The key for India will be to navigate this shift without compromising economic stability, ensuring that its trade policies are driven by long-term strategic interests rather than reactionary moves.