A growing number of economies seem to be exploring local-currency trade to lower transaction costs, limit exchange-rate risks, protect foreign-exchange reserves, and boost financial resilience.
Indonesia-China and India-Sri Lanka are expanding such initiatives to strengthen financial resilience, conserve foreign exchange reserves and support more efficient cross-border payments.
One of the latest examples of this shift comes from Indonesia and China, which are reportedly expanding the use of their Local Currency Transaction (LCT) framework to conduct cross-border trade and investment using the Indonesian rupiah and the Chinese renminbi instead of the US dollar.
According to recent media reports, transactions under the LCT scheme reached nearly $13 billion in the first four months of this year, marking a sharp acceleration from the $18 billion recorded for all of last year.
The Governor of Bank Indonesia has reportedly stated that settling trade and investment transactions in rupiah and renminbi substantially reduces reliance on the US dollar. To further strengthen this arrangement, the Governor reportedly met with his counterpart at the People’s Bank of China to explore expanding the existing Bilateral Currency Swap Agreement (BCSA).
Such agreements allow central banks to exchange their respective currencies up to an agreed limit, ensuring adequate liquidity for trade settlements while reducing dependence on external reserve currencies.
A similar push is also reportedly gathering momentum in South Asia. As per media reports, India has called for greater use of the Indian Rupee and the Sri Lankan Rupee in bilateral trade, arguing that such a transition would benefit both economies.
Addressing a recent roundtable in Colombo titled “Rupee to Rupee: Strengthening the India-Sri Lanka Commercial Corridor,” the Indian High Commissioner reportedly observed that despite their deep commercial ties, the two neighbours continue to conduct most of their trade in US dollars. This, he noted, exposes exporters and importers on both sides to avoidable currency fluctuations, conversion costs, and dependence on a third-country currency that neither nation controls.
The High Commissioner further reportedly argued that greater use of local currencies would help Sri Lanka conserve its precious foreign exchange reserves by reducing the demand for US dollars, allowing scarce hard currency to be prioritised for essential imports and other critical external obligations.
At a time when global markets are increasingly vulnerable to geopolitical tensions, supply chain disruptions, and financial volatility, reducing reliance on a single dominant currency seems to be emerging as a prudent risk management strategy.
Taken together, these developments signal not the fall of the US dollar, but rather incremental, pragmatic de-risking measures within a still dollar-centric global system to build greater financial stability, strengthen economic sovereignty, reduce external vulnerabilities, and streamline cross-border payments into more resilient, efficient systems.
Fibre2Fashion News Desk (DR)
