Two recent ADBI working papers examine this transformation from complementary perspectives
“Outlook and Challenges for Local Currency Transactions” maps the emerging institutional landscape, while “Renminbi Invoicing Under Dollar Dominance” investigates the conditions under which firms actually use the renminbi in international trade. Katsuyuki Tomizawa and Junko Shimizu, the authors of both papers, point toward a more diversified but still hierarchical monetary system. Alternative platforms may expand local-currency use in particular trade corridors, while the dollar remains the principal global currency. The decisive test will not be how many platforms countries establish, but whether those platforms generate sustained private-sector use, liquid foreign-exchange markets and competitive transaction costs.
Why alternatives are growing
Interest in non-dollar payments reflects both economic and geopolitical considerations. Direct settlement between two local currencies can reduce conversion costs and limit exposure to dollar fluctuations when neither trading partner is based in the United States. At the same time, US–China tensions, financial sanctions and trade disputes have made access to international payment infrastructure an economic-security concern. Alternative arrangements can provide additional channels through which countries maintain trade and investment flows if traditional networks are disrupted. This development is better described as payment diversification than wholesale de-dollarization. Countries may use local currencies in regional trade and the renminbi in transactions with China while continuing to rely on the dollar for global funding, commodities and trade with third countries.
What countries are building
China has developed several mechanisms to support cross-border RMB use. These include the Cross-Border Interbank Payment System, offshore RMB clearing banks and bilateral central-bank swap arrangements. Together, they can improve access to renminbi liquidity and reduce the operational barriers facing banks and firms that wish to transact in the currency. Southeast Asian economies are also promoting bilateral local-currency settlement and stronger links among domestic payment systems. The purpose is to make it easier to complete regional transactions directly, for example, between rupiah and baht, without first converting both currencies into dollars. Infrastructure alone, however, is insufficient. Firms also need liquid foreign-exchange markets, participating banks and instruments through which they can hedge currency risk. The first ADBI paper points to Thailand, where regulatory easing accompanied a notable increase in local-currency transactions, as evidence that technology and domestic policy must develop together.
What determines use
The second ADBI paper examines RMB invoicing across 70 economies between 2016 and 2023. It finds that renminbi use depends on more than the technical availability of a payment platform. Trade dependence on China, exchange-rate regimes, capital and foreign-exchange controls, clearing infrastructure and institutional ties all influence adoption. Currency choice also displays considerable inertia. Once firms establish contracts, banking relationships and accounting systems around a currency, they have an incentive to continue using it. Conversely, a country whose exchange rate remains closely oriented toward the dollar is less likely to shift trade invoicing toward the renminbi. The paper therefore presents currency adoption as an ecosystem outcome. Payment infrastructure is most effective when combined with substantial trade flows, accessible liquidity and expectations that other companies will accept the same currency.
Why the dollar persists
The growth of non-dollar platforms has not removed the advantages supporting the dollar. International trade contracts, commodity pricing, corporate borrowing and foreign-exchange markets remain strongly interconnected through dollar use. Firms often prefer the currency already used by their suppliers, competitors and financial institutions, creating powerful network effects. The dollar also benefits from deep and liquid financial markets. A platform may transfer renminbi or regional currencies efficiently, but it cannot by itself create equally developed markets for deposits, bonds, credit and hedging instruments. It is therefore important to distinguish between payment infrastructure, settlement currency and invoicing currency. A payment can travel through a new regional platform while the underlying transaction remains priced in dollars. Likewise, increased RMB settlement does not necessarily produce an equivalent shift in reserves or international borrowing.
Renminbi Invoicing Under Dollar Dominance: Evidence on Inertia, Institutions, and Policy
Outlook and Challenges for Local Currency Transactions: An Analysis of the Trend Toward Dedollarization, Centered on Asia
Authors: Katsuyuki Tomizawa, Junko Shimizu
From: ABDI
