Rethinking monetary defenses: Why policymakers must reframe de-dollarization strategies

Time of India

16 hours ago

H.E. Prof. Sir Manuel Freire-Garabal y Núñez is a lawyer and journalist. He is a professor, contributor and advisor at different universities, particularly at the IVY League. He serves in diplomacy as advisor to United Nations higher officials and as a member of the diplomatic staff of several governments. He has received high honours from Russian Federation, United States or Peru. LESS ... MORE
Global finance is entering a transitional phase. The US dollar remains pre-eminent, yet governments are quietly building buffers against its risks. Economist Otaviano Canuto has described this as 'slow and bounded de-dollarization'—a phrase that captures not only the limits of the trend but also the opportunities it creates for smart policymaking. The challenge now is not to predict the dollar's demise, but to reframe existing policies so that they adapt to this cautious diversification.
Beyond symbolism: Policy adaptation
Much of the discussion around de-dollarization has been dominated by political rhetoric. But Canuto's insight is clear: local-currency arrangements and regional payment systems are not about toppling the dollar, they are about risk management. Governments must treat them as tools of resilience, not as ideological projects.
That reframing matters. Instead of seeing initiatives like the Brazil–China settlement mechanism or BRICS payment platforms as threats to global stability, policymakers should recognize them as insurance policies against shocks. A coherent policy approach requires aligning these experiments with broader financial safety nets.
India's opportunity to lead
India illustrates the policy crossroads. With foreign reserves above $650 billion, it already possesses one of the world's strongest first-line defenses. At the same time, the Reserve Bank of India has promoted rupee-denominated settlements with partners such as Russia, Sri Lanka, and Mauritius. These moves reflect the logic Canuto highlights: pragmatic steps to diversify, not disrupt.
The policy implication is twofold:
Deepen liquidity in rupee instruments, so that settlement agreements can expand beyond symbolic volumes.
Tie rupee internationalization to regional safety nets, ensuring that bilateral arrangements complement, rather than fragment, existing monetary defenses.
By anchoring its strategy in this way, India could become a model for other emerging economies navigating the same balance.
Rebuilding the three pillars
Canuto's framework for external financial defense provides a roadmap for policy reform:
Reserves remain necessary but costly. Policymakers must debate not only how much to accumulate but how to deploy them strategically—through sovereign wealth vehicles, diversification into non-traditional assets, and conditional swap access.
Swap lines and regional arrangements should be reframed as policy infrastructure, not ad-hoc crisis tools. India's role in the BRICS Contingent Reserve Arrangement could be scaled up as part of this shift.
The IMF must be strengthened, not sidelined. For India and other G20 economies, advocating a larger quota share and modernized lending instruments is not charity—it is self-interest in ensuring that the multilateral backstop keeps pace with global liabilities.
Toward a reframed policy architecture
The central lesson is that de-dollarization is not an alternative to the existing system but a layering of complementary protections. Policymakers who continue to frame it as a contest of supremacy will miss the real point: the task is to build resilience in a world of uncertainty.
Reframing existing policies along the lines Canuto outlines means:
Treating local-currency initiatives as hedges, not revolutions.
Embedding swap arrangements in long-term architecture.
Pushing for a stronger IMF to serve as the connective tissue between regional and global defenses.
Conclusion
The future of global finance will not be determined by grand announcements but by how governments adapt their policies today. Canuto's expertise reminds us that the real danger is not dollar dominance, but policy inertia.
For India and other emerging economies, reframing their monetary strategies now—before the next crisis—may determine whether de-dollarization becomes a source of stability or a pathway to fragmentation.
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Views expressed above are the author's own.