Key Details
The ADBI working paper analyses trade invoicing, settlement systems and monetary cooperation across major economies to understand how local currencies are gradually expanding their role in international trade.
Theme | Key Finding | Why It Matters |
|---|---|---|
Global Monetary System | The US dollar continues to dominate export invoicing (54%), foreign exchange trading (89%) and global reserves (57%). | Currency diversification is occurring within, rather than replacing, the existing dollar-centred system. |
Local Currency Settlement | ASEAN economies have expanded Local Currency Settlement (LCS) frameworks, swap arrangements and direct currency trading. | Regional cooperation is reducing transaction costs and exchange-rate risks. |
RMB Internationalisation | The RMB is increasingly used in trade, investment and cross-border payments beyond China-related merchandise trade. | Financial infrastructure is supporting wider international use of the RMB. |
Financial Infrastructure | Clearing banks, CIPS, payment systems and direct exchange markets are becoming central to currency internationalisation. | Infrastructure is emerging as a strategic determinant of cross-border currency use. |
Country Experience | Progress differs across economies depending on policy reforms, financial market development and institutional cooperation. | Currency diversification follows multiple national pathways rather than a single model. |
India | India’s local-currency invoicing remains relatively limited compared with several regional peers despite expanding trade. | Trade growth alone is insufficient without supporting financial infrastructure and settlement arrangements. |
Financial Infrastructure Is Reshaping International Currency Use
The ADBI paper, Outlook and Challenges for Local Currency Transactions: An Analysis of the Trend Toward Dedollarization, Centered on Asia, argues that the gradual expansion of local currency trade is being driven less by shifts in global economic power than by investments in financial infrastructure, payment systems and institutional cooperation. Across Asia, governments have introduced Local Currency Settlement (LCS) frameworks, bilateral currency swap agreements, direct currency trading arrangements and dedicated settlement systems that allow firms to transact without relying exclusively on the US dollar.
Diversification Is Growing Within a Dollar-Centred System
Despite these developments, the report concludes that the US dollar remains the anchor of the international monetary system because of its deep financial markets, liquidity, reserve currency status and strong network effects. While the RMB is gaining ground in trade settlement, investment and cross-border payments, the evidence points to gradual currency diversification rather than rapid de-dollarisation.
Institutions Matter More Than Trade Volumes Alone
Country experiences demonstrate that wider use of local currencies depends on policy coordination, regulatory reforms and financial market development rather than trade volumes alone. Thailand, Indonesia and Malaysia have expanded local currency transactions through coordinated monetary arrangements, while China’s RMB internationalisation has been supported by CIPS, clearing banks and bilateral swap agreements. The report concludes that institutional architecture increasingly determines how currencies expand internationally.
India Has an Opportunity to Strengthen Rupee Internationalisation
Although India is an important regional trading partner, the report finds that local-currency invoicing remains limited compared with several Asian economies. The experiences of ASEAN countries suggest that expanding the international use of the rupee will require stronger payment infrastructure, bilateral settlement arrangements, deeper foreign exchange markets and sustained monetary cooperation in addition to continued growth in trade.
What Is Local Currency Settlement (LCS)?
Local Currency Settlement (LCS) allows two countries to settle cross-border trade directly in their own currencies instead of using an intermediary currency such as the US dollar. By reducing exchange-rate risks, transaction costs and dependence on third-country currencies, LCS frameworks can improve the efficiency and resilience of regional trade while supporting greater international use of domestic currencies.
Policy Relevance
Reinforces India’s rupee internationalisation strategy by showing that wider international use of a currency depends on payment infrastructure, financial markets and institutional cooperation, not trade expansion alone.
Highlights Local Currency Settlement frameworks as practical mechanisms for reducing transaction costs and exchange-rate risks in regional trade, offering useful lessons for India’s engagement with ASEAN, the Gulf and other trading partners.
Demonstrates that financial infrastructure is becoming strategic economic infrastructure. Clearing banks, cross-border payment systems, currency swap arrangements and interoperable settlement platforms increasingly shape the competitiveness of international financial centres.
Suggests that cross-border digital payments and Digital Public Infrastructure can complement India’s efforts to expand rupee-denominated trade by improving the efficiency and accessibility of international payments.
Shows that currency diversification is an evolutionary process rather than a replacement of the US dollar.Deep financial markets, macroeconomic stability, regulatory credibility and liquid foreign exchange markets remain essential for strengthening confidence in any international currency.
Underscores the importance of regional monetary cooperation through bilateral arrangements and common settlement mechanisms as geopolitical fragmentation and supply-chain reconfiguration encourage countries to diversify payment and settlement options.
Indicates that India’s broader financial sector reforms - including capital market development, payment innovation and cross-border financial connectivity - will influence the pace at which the rupee gains a larger international role.
Follow the Full Paper Here: Outlook and Challenges for Local Currency Transactions: An Analysis of the Trend Toward Dedollarization, Centered on Asia