Explained: How India Should Act in the De-Dollarization Age

In ABC Research
October 4, 2025
Dinesh Singh Rawat
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De-dollarization is real but slow. India must focus on reducing dollar risk, piloting INR trade corridors, and using SCO/BRICS to strengthen the rupee.

New Delhi (ABC Live): Global headlines on De-Dollarization often confuse short-term valuation swings with structural change. IMF’s Q2 2025 reserves data shows the dollar’s share fell sharply—but 92% of that drop was a statistical illusion caused by exchange-rate shifts. For India, the stakes are high: De-Dollarization offers both risks and opportunities. This report explains how India should act—leveraging the SCO and BRICS frameworks, building INR corridors, and avoiding the trap of the Dedollar Illusion.

The Mirage of De-Dollarization

In Q2 2025, the dollar’s reported share of global reserves fell from 57.79% to 56.32%. At first glance, this looks like accelerating De-Dollarization. But once adjusted for exchange-rate effects—especially the 10% fall of the U.S. dollar index (DXY) in H1 2025, its steepest first-half slide since 1973—the real decline was only 0.12 percentage points.

Key lesson: Most of the “fall” in the dollar’s dominance was a Dedollar Illusion, not true De-Dollarization.

India’s Strategic Balancing Act in the De-Dollarization Era

India cannot afford to follow China’s aggressive RMB push or Russia’s forced ruble settlements. Instead, its challenge is to reduce avoidable dollar risk in trade and finance—while preserving access to U.S. capital markets.

This requires a two-track De-Dollarization approach:

Regional pilots (SCO): Using Kazakhstan, Uzbekistan, and Central Asia as testbeds for INR corridors.
Global legitimacy (BRICS): Using BRICS+ platforms to amplify the narrative of multipolar currency use.

SCO Corridors: India’s Laboratory for De-Dollarization

The SCO is India’s most practical laboratory for De-Dollarization. Trade volumes are modest, but their structure—balanced exports to Uzbekistan, energy imports from Kazakhstan—makes them suitable for targeted INR pilots.

Table 1: India–SCO Trade Snapshot & INR Settlement Potential

Partner	Recent Trade Signals	INR Opportunity	Why It’s Feasible	Practical Hurdles
Kazakhstan	Exports ~$0.38bn; Imports ~$1.6–2.0bn (energy-heavy)	Partial-INR in energy + INR-settled exports	SCO frameworks; Indian services/infra firms can absorb INR	Crude priced in USD; counterparties need INR hedges
Uzbekistan	Balanced trade (pharma, machinery, consumer goods)	Full-INR pilots in pharma/light engineering	Higher acceptance for local-currency experiments	INR clearing and banking channels are underdeveloped
Other SCO States	Low volumes	Long-term INR pooling via hubs	Build gradually	Too small for immediate corridors

Comparative De-Dollarization Strategies: India vs. China vs. Russia

Table 2: De-Dollarization Approaches

Country	Approach	Results so far	Lessons for India
China (RMB)	Pushing RMB in trade (Russia–China >90% RMB/ruble), RMB hubs in Brazil & the Gulf	RMB in reserves still ~3%; capital controls limit trust	Aggression builds usage, but credibility remains fragile
Russia (Ruble)	Forced local-currency trade post-sanctions	The ruble is used regionally, but volatility undermines it	Coercion ? stability
India (INR)	Cautious, incremental (UPI corridors, Masala bonds, SCO pilots)	INR reserve share is negligible; UPI is growing fast	Focus on hedging depth & usability, not grand slogans

Building India’s INR Ecosystem for De-Dollarization

For INR to matter in De-Dollarization, it must be:

Spendable: INR trade corridors with SCO & Gulf states.
Hedgeable: Liquid forwards and OIS markets at GIFT City.
Investable: Masala bonds and offshore INR debt instruments.

Key steps:

Payments & Settlement: Expand UPI/e? corridors; build INR netting & escrow accounts.
Capital Markets: Grow INR OIS volumes by 50–100%; relaunch Masala 2.0 bonds.
Commodities & Reserves: Anchor INR benchmarks (crude, bullion); build gold stock (already ~880t at RBI).

Roadmap for India’s De-Dollarization Strategy

Table 3: INR Strategy—Phased

Horizon	Key Moves	Strategic Outcome
0–6 months	UPI/e? pilots with SCO partners; model INR contracts	Build trust in INR
6–18 months	Masala 2.0 relaunch; INR OIS depth at GIFT City	Hedgeability + liquidity
18–36 months	Bilateral INR corridors with Kazakhstan & Uzbekistan	Anchor INR in real trade flows
36+ months	INR crude benchmark; SCO/BRICS swap lines	Institutionalize INR’s role

Reading the Numbers in the De-Dollarization Debate

Dollar still dominates: 92% of the Q2 2025 reserve decline was valuation noise, not real De-Dollarization.
Dollar weaker, but entrenched: >10% H1 2025 slide makes non-USD settlement cheaper, but not transformative.
Gold rising: RBI at ~880 tonnes—practical hedging, not symbolic “escape” from USD.
Trade corridors emerging: SCO pilots + UPI corridors = practical avenues for INR in the De-Dollarization age.

Conclusion: De-Dollarization as Options, Not Exits

For India, De-Dollarization is not about dethroning the dollar; it’s about hedging risks and creating usable INR alternatives. The path forward is pragmatic:

SCO pilots for INR trade,
Masala bonds for capital inflows,
UPI/e? corridors for settlement,
and INR benchmarks for commodities.

De-Dollarization is about options, not exits. India’s success will depend on how quickly it can make the rupee usable, hedgeable, and trusted—both at home and abroad.