Several countries are increasingly using local currencies for cross-border trade instead of relying on the US dollar for international transactions. A new report suggests that this trend could gradually weaken the dollar’s dominant position in the global financial system.
The use of local currencies in international transactions continues to grow, with Asia emerging as one of the most active regions in developing local currency transaction (LCT) arrangements.
Indonesia has established LCT partnerships with Malaysia, Thailand, China, Japan, South Korea and the United Arab Emirates, while it continues to explore cooperation with other countries, according to an article in India Narrative.
Bank Indonesia reported that transactions under its LCT framework reached $49.4 billion through August 2026, compared with $25.7 billion for the whole of 2025. This means that transactions in the first eight months of 2026 had already approached twice the previous year’s total.
Beyond Southeast Asia, China is promoting the internationalization of the renminbi through bilateral trade agreements and cross-border payment systems. BRICS members are also exploring ways to use their national currencies to facilitate trade among participating countries, the article noted.
In Europe, businesses increasingly use the euro for intra-European trade, making it an important part of regional economic integration. Latin America has a long history of regional trade and local payment arrangements, including bilateral and regional mechanisms. Meanwhile, Africa has developed the Pan-African Payment and Settlement System (PAPSS) to facilitate cross-border payments in local currencies.
The article identifies several factors driving the growing interest in LCT arrangements. First, businesses can reduce currency conversion costs by avoiding the need to route transactions through the US dollar. Second, local currency settlements can help businesses manage certain foreign exchange risks, although the benefits depend on market liquidity and exchange-rate movements.
Geopolitical concerns and the need for economic resilience also play an important role. Trade tensions, financial sanctions and uncertainty over the policies of major economies have prompted governments to diversify their currency arrangements and seek greater flexibility in managing international trade and financial relationships.
The expansion of LCT arrangements goes beyond efforts to reduce dependence on the US dollar. It also has strategic implications for American economic interests. As more countries settle bilateral trade in their own currencies, demand for dollars in certain segments of the international transaction market could gradually decline, the article observed.
Over the longer term, this shift could affect global demand for US financial assets, including Treasury securities, and potentially reduce some of the advantages the United States enjoys from the dollar’s dominant international role, the article added.