As the world gradually moves away from the dominance of the US dollar, South Asian countries face a pivotal crossroads. For many of these fragile economies, this shift risks merely substituting one master currency for another without any of the financial autonomy they seek.
The narrative of de-dollarization is often celebrated as a marker of rising multipolarity in global finance and a blow to Western economic hegemony. The greenback’s share of global foreign exchange reserves has declined from 72 percent in 2002 to 58 percent in 2024.
Meanwhile, China’s yuan has emerged as a rising challenger. It now constitutes over 7 percent of SWIFT international financial transactions and 2.2 percent of global reserves. This rise has been supported by China’s assertive efforts to internationalize the yuan, spurred in part by US sanctions on rival nations and a growing appetite for non-dollar trade within multilateral blocs such as BRICS.
Yet these developments, while geopolitically significant, carry uneven consequences across the Global South. For many countries in South Asia, including Pakistan, Sri Lanka, Nepal, and Bangladesh, this monetary transformation could deliver more risks than rewards unless carefully managed. These nations remain heavily indebted in US dollars, hold limited foreign reserves, and maintain weak export sectors. A switch from the dollar to the yuan does not automatically confer greater sovereignty or economic strength. On the contrary, it may exacerbate vulnerabilities if not matched by bold domestic reforms.
What many policymakers overlook is that the core problem lies not in the choice of reserve currency, but in deep-seated structural weaknesses. With the notable exception of India, most South Asian economies are recurrent borrowers from the International Monetary Fund and are bound by debt obligations that enforce austerity. Pakistan, for example, has participated in 25 IMF programmes, often under strict conditions that stifle growth and long-term investment. Without comprehensive reform, adopting a new currency anchor will not liberate these countries; it will simply reframe their dependency in another form.
A meaningful strategy for financial independence requires more than adjusting the mix of currencies in central bank reserves. It calls for building robust domestic capabilities, including competitive export sectors, resilient industrial output, technological advancement, and sustainable debt management. However, South Asia continues to struggle with persistent trade deficits, overreliance on imported energy and consumer goods, and fragile fiscal systems. Until these foundational gaps are addressed, currency realignment alone cannot mitigate external shocks or secure economic autonomy.
As the momentum behind bypassing the US dollar accelerates, South Asian countries must ask a more forward-looking question: Can they use this global inflection point to build economies that are less vulnerable, more inclusive, and truly sovereign? That, far more than choosing between the yuan and the dollar, remains their most urgent and unfinished business.
The allure of the yuan also comes with its own complications. Unlike the dollar, it is not fully convertible and remains under strict control by Chinese state authorities. This lack of liquidity and transparency creates challenges for countries considering deeper yuan integration. Moreover, Chinese financial support often comes with opaque terms, limited policy flexibility, and a concentration of investment in sectors that may not yield inclusive development. Countries such as Pakistan and Sri Lanka, already deeply indebted to China through the Belt and Road Initiative, could face even greater constraints if they increase reliance on the yuan without proper safeguards.
In today’s environment, the choice is not merely between the dollar and the yuan. The real question is whether South Asian countries can move beyond currency dependence altogether. Rather than aligning themselves with one geopolitical pole or another, they must invest in long-term economic resilience. This includes fostering a diversified manufacturing base, promoting export-led growth, leveraging digital infrastructure for financial inclusion, and strengthening institutional capacity to navigate global financial turbulence.
Additionally, embracing flexible, multi-currency trade and settlement mechanisms can offer greater strategic autonomy. By developing local capital markets and engaging in bilateral or regional currency swap agreements on favorable terms, these countries can enhance their financial sovereignty without binding themselves too tightly to any single external power.
For nations like Pakistan, de-dollarization is not a silver bullet. Without confronting fundamental economic challenges, such as high debt burdens, low reserves, and narrow industrial bases, the shift from the dollar may only deepen reliance on another dominant actor. True financial independence is not achieved through symbolism or reactive alignment. It stems from cultivating an economy that is competitive and capable of withstanding volatility in the global economic landscape.
As the momentum behind bypassing the US dollar accelerates, South Asian countries must ask a more forward-looking question: Can they use this global inflection point to build economies that are less vulnerable, more inclusive, and truly sovereign? That, far more than choosing between the yuan and the dollar, remains their most urgent and unfinished business.
