The U.S. dollar continues to dominate global finance, but strains from high interest rates, sanctions, and policy unpredictability are pushing nations to explore cheaper or more politically viable alternatives.

Developing nations seek cheaper borrowing

Beyond trade, borrowing decisions by heavily indebted nations underscore this trend.

The Financial Times reported in August 2025 that Kenya is in talks with China’s ExIm Bank to convert a $5 billion railway loan into yuan, while Sri Lanka is negotiating renminbi loans for a major highway project.

Panama, in July, tapped about $2.4 billion in Swiss franc loans, saving an estimated $200 million in servicing costs.

These choices are largely economic. The U.S. Federal Reserve’s benchmark rate currently sits above 4.25 percent, while the Swiss National Bank has cut to zero and China’s seven-day reverse repo rate is around 1.4 percent.

As AllianceBernstein’s Armando Armenta told the FT, “USD financing [has become] more onerous for developing countries,” pushing them toward more affordable currencies.

The Fed’s benchmark interest rate — which drives the cost of dollar borrowing globally — ranges from 4.25 to 4.5 percent. This affects everything from government debt servicing to household credit.

By contrast, Switzerland’s policy rate stands at zero, while China’s short-term reverse repo rate signals far cheaper borrowing at 1.4 percent.

Russia–India oil trade shifts away from the dollar

One of the clearest examples lies in the energy trade between Russia and India. Since Western sanctions cut Russia off from much of the dollar-based system in 2022, Moscow has pushed for payment in alternative currencies.

According to Reuters, Indian refiners, including state-owned giants like Indian Oil Corp, have increasingly settled imports of Russian crude in Chinese yuan, the UAE dirham, and occasionally Russian roubles.

Yuan and Swiss franc emerge as alternatives to the U.S. dollar. Photo: ChatGPT

This illustrates how sanctions and financial chokepoints are fostering practical alternatives to the dollar in certain trade corridors.

The yuan has gained particular traction, with Chinese banks offering liquidity and Russia itself holding more reserves in renminbi.

Still, analysts note this is driven more by necessity under sanctions than by a strategic rejection of the dollar.

Why this matters now

For already strained economies, the ability to service debt at lower cost offers vital relief. Elevated U.S. rates make dollar debt more expensive, while cheaper currencies provide budgetary breathing room.

Sudden and sweeping U.S. sanctions have also forced countries to reconsider dollar-based trade with sanctioned or sensitive partners. For them, bypassing dollar channels reduces banking risk and compliance burdens.

Trump’s second term has added to global unease, pushing economies large and small into an era of policy uncertainty and tariff shocks.

In April 2025, the Trump administration imposed—via executive order—a sweeping 10 percent baseline tariff on most imports, along with higher “reciprocal” tariffs on nearly 60 countries. The rollout, one of the most aggressive in decades, took effect in two stages on April 5 and April 9.

Although some U.S. courts quickly ruled that these tariffs exceeded presidential authority, the rulings offered only temporary relief as appeals proceeded.

More recently, Trump’s 50 percent tariff on Indian exports has forced New Delhi to seek alternative partners, cushion its farmers, and recalibrate trade policy.

Effective since August 27, the tariffs were officially justified as a response to India’s continued purchase of Russian oil.

However, several analysts argue that the real trigger was New Delhi’s rejection of Trump’s offer to mediate in the Indo-Pak conflict last May — a role he has repeatedly described as Nobel-worthy.

Trump has often claimed credit for preventing escalation by threatening both India and Pakistan with punitive tariffs. Yet, despite subsequent de-escalation, he went ahead with a 50 percent tariff on India, citing discounted Russian oil imports as the rationale — an explanation many experts dismiss.

De-dollarisation, but only selectively

In this light, today’s de-dollarisation is best seen as partial and pragmatic. Sanctions have forced Russia and India to transact in yuan, while high U.S. rates have nudged developing economies toward franc or renminbi borrowing.

Still, scale, liquidity, and trust make the dollar the unrivalled anchor of international finance.

According to SWIFT’s RMB Tracker, reported by Reuters in January 2025, the yuan accounted for just 4–5 percent of international payments by value, far below the dollar and the euro. Together, the dollar and euro cover the overwhelming majority of settlements.

What we’re seeing, then, is targeted, cost-driven borrowing and selective trade adjustments — not a systemic collapse of the dollar.

A handful of infrastructure projects are being refinanced in RMB or Swiss francs. A subset of commodity trade is bypassing dollar-clearing systems.

But these remain exceptions, not indicators of structural change.

For now, the U.S. dollar continues to underpin global finance — from reserves to trade invoicing to banking and capital markets.

At least today, for most of the world, it remains the default.