Trump's 'Erratic' Trade Moves Speed Up Asia's De-Dollarization Push Amid Fears Of Weaponized Greenback

Asian economies are slowly but steadily reducing their reliance on the dollar  - a move forced by geopolitical uncertainties, monetary policy shifts and currency hedging.

A CNBC report said this move away from the greenback is not a new phenomenon, but the narrative has changed: it is a risk mitigation against the U.S. currency being weaponized in trade negotiations. 

The report also said the move away from the dollar has been more rapid in Asia than the rest of the world.

ING strategist Francesco Pesole told CNBC that“Countries are looking at the fact that the dollar has been, and can be used as a sort of weapon on trade, direct sanctions, etc... That's been the real change, I think, in the last several months.”

“Trump's erratic trade policy decisions and the dollar's sharp depreciation are probably encouraging a more rapid shift towards other currencies.”'

MUFG head of global markets research Lin Li sees the motive as reducing forex risks by shifting to using their own currencies as a medium of exchange by Asian nations.

This year, the U.S. dollar has been under pressure as President Donald Trump imposed sweeping import tariffs on its trading partners. This fueled fears of an economic slowdown in the U.S., which weighed down on the dollar.

The Dollar Index, which measures the dollar's value against a basket of major currencies, has lost about 9% this year.

The CNBC report, citing a recent BofA note, said,“De-dollarization in ASEAN is likely to pick up pace, primarily via conversion of FX deposits accumulated since 2022.”

In late May, ASEAN released its strategic plan for 2026-2030, highlighting efforts to reduce shocks associated with exchange rate fluctuations by promoting local currency settlements and strengthening regional payment connectivity.

BRICS, a powerful coalition comprising Brazil, Russia, India, China and South Africa, has been eyeing alternatives to the dollar, including a“BRICS currency,” local currency usage and putting in place alternative payment systems.

Nomura reportedly said the de-dollarization is also facilitated by Asian investors scurrying to hedge their dollar exposure amid its volatility. Hedging dollar exposure involves selling dollars and buying local or alternative currencies to protect against wild swings, weakening the dollar.

However, BMI Chief Economist Cedric Chehab sees the de-dollarization move as“cyclical” and not“structural.” He warned that the desertion could become structural if the U.S. aggressively uses sanctions or regional governments mandate that pension funds invest a large share of their assets domestically.

The Invesco DB US Dollar Index Bullish Fund (UUP) edged up 0.07% to $27.42 in Wednesday's early premarket session. It is down about 7% this year.

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