BRICS and US Promoting Same Myths About De-dollarisation

Despite the media reports, dedollarisation could have less to do with sanctions, tariffs, or the weaponisation of the dollar, and more to do with US fiscal and monetary policy ill-discipline. Of course, additional factors may be accelerating the trend, but both the US and the BRICS tend to overstate political factors.

There is no question that sanctioning Russia was a pivotal moment. While the US had utilised financial sanctions against smaller countries like Afghanistan and Cuba, this was the first time an attempt was made to remove such a large economy from the dollar based global financial system. It was certainly a major turning point.

But was it really the decisive factor?

Despite the dollar’s weaponisation, it has remained the world’s most used currency for trade transactions. In contrast, central banks now appear to prefer gold over US Treasuries. As such, the economic motivation for de-dollarization appears stronger than the political one.

This shift in central bank reserve accumulation suggests that nations are more concerned about US indebtedness than sanctions, having calculated that the US may need negative real interest rates to alleviate its debt burden. For foreign holders of US Treasuries, this translates to material financial losses.

This process actually began long before the conflict in Ukraine and would likely have continued regardless due to structural economic factors. As the US deficit kept expanding, foreign central banks already stopped adding to their net US treasury holdings more than a decade ago in 2014.

While part of this shift may have reflected slower growth in global reserves and an effort to move into higher yielding assets, major central banks have also ramped up gold purchases which are illiquid and offer no yield at all. This dual pivot suggests a diversification strategy characterised by growing risk aversion towards American bonds.   

Another milestone came in 2022, when central bank gold buying surged following the pandemic and the US federal debt balloon from $23 trillion to $39 trillion today. At the same time, the Fed’s balance sheet expanded from $4 trillion to almost $9 trillion, although it has since contracted.

This quantitative easing, which originally followed in the wake of the 2008 financial crisis has recently been rebranded as ‘reserve management purchases’. These extraordinary measures were supposed to be temporary, and yet various forms of QE are still be utilised to this day.

In 2025 gold overtook US government bonds as a share of global reserve portfolios for the first time since 1996. This is a historically significant inflexion point as gold declined as a share of central bank reserves throughout the 80s and 90s, a trend now clearly reversing. Many states, including Poland and China, are now actively replacing US debt with gold in their holdings.

There is little to suggest that this trend will reverse again any time soon. Trump promised US voters that he would reduce the US budget deficit and yet the annual budget deficit has only grown larger since his re-election.

This combination of persistently loose fiscal and monetary policy suggest the US may lack a credible strategy for restoring broad-based confidence in the management of the dollar. The conclusion central banks have drawn is that the US may have no choice but to inflate away its debt, leaving bond holders to shoulder the losses.

You cannot realistically borrow your way out of a debt burden with positive real interest rates because you would need to pay even more interest on the money borrowed to pay down debts. Negative real rates, by contrast, allow a country to repay its creditors in money that is worth less than what was borrowed. This should also weaken the currency, allowing inflation to erode the debt principle even further, without having to compensate investors.

This already happened during the pandemic with US consumer prices rising as much as 8% while the 10-year Treasury yielded roughly 1.5%. Real returns were negative and the gold price responded accordingly. A similar situation has played out in Japan where low real interest rates over a long period of time have produced a gradual yet significant decline in the value of the yen.

Sustained low to negative real interest rates could steadily reduce the US dollar’s purchasing power, leading to poor real returns for anyone holding US Treasuries. For foreign central banks and other major international holders of US debt, this has already resulted in substantial losses.

Alternatively, if the US raises short term rates, or long term rates rise when short term rates are cut (which is sometimes the case if the market believes a decline in the repo rate could prove to be inflationary) then bond holders could still find themselves out of pocket because of a decline in the face value of their older, lower-yielding bonds.   

This is what we saw during the recent rally in gold when counterintuitively both gold and long dated bond yields rose at the same time. While real interest rates have briefly turned positive, the US shows little sign of curbing spending or raising taxes enough to approach a balanced budget and the long term trend remains worrying.  

Given this backdrop, why does the public conversation lean so heavily on geopolitics? Perhaps concepts like negative real yields or reserve allocation do not make for gripping headlines. That said, the BRICS are just as guilty as the Western financial press for promoting this narrative.

Those with high exposure to US dollar-denominated assets prefer to cite figures showing stable dollar usage in SWIFT messaging, ignoring the growing volume of trade conducted outside this system. Many analysts also tend to ignore the decline in euro usage, which boosts the dollar’s share of global trade settlements in relative terms.

That said, now that significantly higher gold prices have ensured the topic cannot be avoided, both Washington and the BRICS governments highlight the ‘weaponization’ of the dollar as the chief reason central banks are diversifying their reserve holdings. The alternative is admitting that the economic architecture of the dollar system is crumbling.

The United States has a clear stake in sustaining its monetary supremacy and would prefer not to dwell on its structural fragilities. Media reports about geopolitical uncertainty driving a rise in the gold price conveniently diverts attention from much deeper fiscal and monetary problems.

At the same time, the BRICS nations are engaged in a similar narrative strategy. Many of them, including China, still hold large volumes of US treasuries despite their declining confidence in them. However, unloading these positions must be done slowly to avoid destabilising losses.

This is why gold purchases by central banks and forays into the use of alternative settlement currencies have taken place gradually and discreetly. The plan is to gradually transition away from the dollar to minimise losses while slowly transitioning to a more balanced system.