Written by Dr Nasrin Sheely
Dollar dominance has long been at the heart of Asia’s trade and financial architecture. For decades, the greenback has acted as the global reserve currency, medium of exchange, and unit of account for cross-border settlements. Asian economies, despite their increasing integration with one another, continue to rely heavily on US dollar for invoicing trade, accumulating reserves, and servicing external debt. This dependence creates vulnerabilities: exposure to dollar liquidity crunches, imported inflation through exchange rate volatility, and limited room for regional monetary sovereignty. Reducing dollar dependence has therefore emerged as a recurring policy aspiration across Asia. Initiatives ranging from bilateral currency swaps to proposals for regional currency blocs have been floated repeatedly. Yet the path toward meaningful de-dollarization is far more complex than rhetoric suggests. Bangladesh offers a particularly instructive case study in this regard, because while its earnings flow overwhelmingly from outside Asia, its imports remain largely Asia-centric. This mismatch illustrates the structural challenges Asia faces in moving away from the dollar while also pointing to potential avenues of reform.
The dollar’s dominance is reinforced by several realities. Trade invoicing is one of the most important. Even when trade takes place between Asian partners, invoices are overwhelmingly denominated in dollars. An Indonesian company importing Chinese machinery, for instance, often pays in dollars, not yuan. This is partly because the dollar is liquid, widely accepted, and reduces exchange risk across diverse jurisdictions. Central banks in Asia also hold the majority of their reserves in US dollar assets, particularly US Treasury securities, which act as insurance against sudden capital outflows and currency depreciation. At the same time, much of Asia’s external borrowing – whether sovereign or corporate – remains dollar-denominated, which further amplifies the dollar’s centrality, since debt servicing requires steady access to dollar liquidity. Perhaps most critically, Asian economies often earn their export income not from regional neighbors but from advanced economies, especially US and Europe. These earnings naturally arrive in dollars or euros, not in regional currencies. This final point lies at the heart of the Bangladesh example.
Bangladesh’s external sector demonstrates this imbalance clearly. The majority of its foreign exchange earnings come from exports of readymade garments to Europe and North America, along with remittances from Bangladeshi migrant workers in the Middle East and beyond. These inflows overwhelmingly arrive in US dollar. On the expenditure side, however, Bangladesh’s imports are heavily concentrated in Asia – raw materials from China and India, energy from Middle east and the Gulf, and capital goods from East Asia. The result is that while Bangladesh earns mostly in dollars, it spends primarily in regional markets. Yet because those regional suppliers prefer to invoice in dollars, Bangladesh has little choice but to channel its dollar earnings back into dollar settlements, even for intra-Asian transactions. This pattern exemplifies the wider Asian dilemma: income comes largely from outside the region, while procurement takes place within the region. The mismatch cements dollar use.
The difficulty of reducing this dependence stems from several factors. The dollar enjoys powerful network effects: once a currency becomes the standard for trade and finance, everyone has an incentive to keep using it. No regional currency has yet been able to challenge this. Neither the Indian rupee nor the Chinese renminbi offers the same liquidity, stability, and hedging instruments that the dollar does. Until these markets deepen, traders will continue to prefer dollars for efficiency and risk management. There is also the question of trust and convertibility. Full capital account convertibility is still limited in Asia. The RMB, for example, remains subject to capital controls, which makes importers and exporters hesitant to hold large balances in it. As Bangladesh’s case demonstrates, if earnings are in dollars but suppliers demand dollars as well, then using regional currencies requires an extra conversion step, adding cost and uncertainty. Compounding this problem is Asia’s geopolitical fragmentation. Unlike the European Union, Asia lacks a unified institutional framework that could anchor a regional currency or monetary union. Divergent political interests make collective action difficult.
Despite these challenges, Asia has been experimenting with ways to reduce its reliance on the dollar. Central banks have signed bilateral currency swap agreements, particularly with the People’s Bank of China, to allow countries to settle bilateral trade in local currencies. Bangladesh has occasionally explored using RMB for transactions with China. The Asian Clearing Union was originally conceived to reduce the need for dollars in regional settlements by allowing member countries to net their trade flows, though in practice the ACU itself often settles in dollars or euros. China has been steadily promoting use of the RMB in trade settlement, particularly through the Belt and Road Initiative, and some Asian economies have started paying for Chinese imports in RMB, though adoption remains patchy. More recently, central bank digital currencies and blockchain platforms are being piloted to enable direct local currency settlement, with projects like “mBridge” involving several Asian central banks. Over time, deeper integration of Asian bond and equity markets could create more demand for local currencies, though this remains a long-term prospect.
Bangladesh’s experience illustrates both the limits and the opportunities of de-dollarization. With earnings concentrated in non-Asian markets, it cannot unilaterally switch to paying in regional currencies. Even if China accepts RMB for exports, Bangladesh would still need to source those RMB, which implies converting from dollars. At the same time, the country can diversify its reserve composition by holding more RMB or other Asian currencies, especially since its imports are Asia-centric. This would reduce transaction costs and hedge against dollar volatility. Bangladesh could also encourage bilateral agreements with key partners – China, India, Malaysia – to settle a share of trade in local currencies. While this will not eliminate dollar dependence, it can incrementally reduce exposure. Participation in regional digital settlement or payment-linkage initiatives could also prepare the country for a future where local currencies are easier to use across borders.
For Asia as a whole, meaningful reduction of dollar dependence requires a multipronged approach. Central banks should gradually diversify reserves into RMB, yen, and even gold, to reduce concentration risk. Regional institutions like the Asian Clearing Union could be revitalized or new platforms created to build confidence in alternatives. Asian economies need to deepen bond markets and provide hedging instruments in local currencies, making them more attractive to investors. Exporters should be encouraged to invoice regional trade in non-dollar terms, though this requires a cultural and institutional shift. Technology should be leveraged through digital currencies, instant payment systems, and blockchain settlement to overcome traditional hurdles of trust and convertibility. Ultimately, reducing dollar dependence is as much a political project as an economic one. Asian nations need to coordinate strategies despite their rivalries, recognizing the shared benefits of financial sovereignty.
The vision of an Asia less dependent on US dollar is not impossible, but it is certainly difficult. Bangladesh’s experience vividly demonstrates why: when income is earned in non-Asian markets and expenditure is concentrated within Asia, the dollar naturally becomes the bridge. Unless Asian economies align both sides of the equation – earning and spending – on a regional basis, the dollar will remain dominant. However, incremental steps are possible. By diversifying reserves, strengthening regional institutions, and adopting new digital technologies, Asia can chip away at dollar dependence. Bangladesh, as a country straddling global earnings and regional procurement, has the opportunity to act as a test case for such experiments. Dollar dominance will not disappear overnight, nor will Asia suddenly embrace a single alternative. But as economic gravity continues to shift toward Asia, the imperative of greater monetary autonomy will only grow. The challenge is not whether Asia can live without the dollar, but how far it can go in creating alternatives that better reflect its own regional realities.
