Due to the dominance of the US dollar, it is mostly used in the international trade, making it the most demanded and widely accepted currency. But this dependence brings it's own risks. As a result there is a demand of reducing dollar dependency across the world in the trades and transactions. This is known as De-dollarization.

De-dollarization refers to the process of reducing or decreasing the dependence on the US dollar in a country's economy or financial system. This can involve various measures and policies aimed at minimizing the use of the U.S. dollar in transactions, reserves, and financial systems.

How? One of the ways of De-dollarization is the shifting of trade in local currency. This has become the usual route in which countries follow in an attempt to de-dollarise the economy, challenging the US dominance.

Brazil has been expanding its bilateral currency trade with Japan and has recently struck a deal with China to trade in their domestic currencies. similarly India and Russia are conducting their trade in domestic currencies after the sanctions imposed against Russia by the Western countries. Similarly, China and France have agreed to trade in yuan-settled LNG.

Recently, Indonesia has switched to a Local Currency Trade (LCT) system, which will significantly lower the share of US dollar in its current account transactions. African nations are also contemplating eliminating the US dollar and opting for domestic currencies for intra-Africa trade. However this move has its own advantages and disadvantages :

Advantages

• Reduced dependence on the US dollar: De-dollarization can help India reduce its exposure to currency risks associated with dollar fluctuations.
• Diversification of global reserve currencies: By reducing its reliance on the US dollar, India can diversify its currency reserves and potentially increase its sovereignty.
• Increased monetary policy independence: De-dollarization can allow India to set its interest rates, control the money supply, and respond to changes in the economy more effectively.
• Stimulation of domestic businesses: De-dollarization can promote increased use of the Indian rupee in international trade, reducing the need for foreign exchange conversions and associated costs.​​​​​​​

Disadvantages

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• Currency instability: De-dollarization could lead to increased volatility in currency exchange rates, particularly during the initial phases of transition.
• Uncertainty in global markets: The transition to de-dollarization may cause uncertainty in global markets, potentially affecting India's trade balance and currency volatility.
• Potential geopolitical risks: De-dollarization could lead to increased tensions with the US and other countries that rely heavily on the US dollar.

India has taken several steps to deal with de-dollarization, such as increasing its gold reserves, promoting the use of local currencies in trade, and signing currency swap agreements with other countries.