De-Dollarization and South Asia: Challenges and Opportunities for Nepal in a Multipolar Currency World

The United States dollar’s dominance as the global reserve currency, established under the 1944 Bretton Woods system, has persisted despite the 1971 decoupling of the dollar from gold. Its liquidity, stability, and backing by the U.S. government provide strong financial security and advantages, including widespread global acceptance and relatively low borrowing costs. For these reasons, the U.S. dollar has dominated global markets for the past eight decades. However, rapidly emerging geopolitical and economic power shifts are increasingly challenging the dominance of the U.S. dollar. In 2009, Brazil, Russia, India, China, and South Africa formed BRICS as a platform for collaboration and investment cooperation. BRICS, which has since expanded to include ten countries, is exploring alternatives to the U.S. dollar for international trade. These alternatives include trade in local currencies and the use of Central Bank Digital Currencies (CBDCs). Western sanctions on China, Russia, Iran, and other countries, as well as China’s ambitious Belt and Road Initiative, have further accelerated efforts to reduce dependence on the dollar-based system. These emerging trends have mixed implications for South Asia. India is actively promoting rupee-based trade to strengthen regional commerce using the Indian Rupee, and several South Asian countries aspire to pursue similar approaches. The limited convertibility of the currencies of BRICS member nations makes a complete replacement of the U.S. dollar in international trade difficult. Nepal, in particular, may face substantial challenges because its economy relies heavily on remittances and imports, both of which remain closely tied to the global dollar-based financial system.