The Dollar Is Being Hedged. Here’s the Architecture Being Built to Do It.

The turning point was February 2022. When the United States and its allies froze approximately $300 billion of Russia’s foreign exchange reserves following the invasion of Ukraine — assets held in dollar-denominated instruments, largely custodied in Western financial institutions — it was the largest sovereign asset freeze in the modern era. It was also the clearest demonstration of what economists and policymakers now call the “weaponisation” of the dollar.

The lesson was not lost on other major economies. If sovereign reserves — ostensibly neutral financial assets — could be frozen by a single political decision in Washington, then holding reserves in dollars was not neutral storage. It was a geopolitical exposure. OMFIF, the Official Monetary and Financial Institutions Forum, identified the sanctions regime as a key driver of the recent decline in the dollar’s reserve share. The Federal Reserve’s own July 2025 analysis reached a similar conclusion: reserve diversification has accelerated, and the erosion of trust in dollar-denominated assets is central to that acceleration.

The countries most actively responding to this calculus are not exclusively ideological adversaries of the West. Many are pragmatic actors — central bankers in Cairo, Jakarta, Riyadh, and Brasília — who have drawn a rational conclusion: over-concentration in any single currency whose issuer has demonstrated the political willingness to weaponise it is a risk management problem. And they are solving it.

The five countries at the centre of this shift are not acting in perfect coordination. Their motivations diverge, their methods differ, and in some cases — notably India and China — they remain active geopolitical rivals. But their individual actions are converging on a common outcome: a global payments and reserve architecture with less dollar intermediation than at any point since Bretton Woods.

China is the most architecturally ambitious. Its Cross-Border Interbank Payment System (CIPS) — launched in 2015 and continuously upgraded — had 176 direct and 1,514 indirect participants across 121 countries as of mid-2025, with services reaching over 4,900 banking institutions in 189 countries. Full-year 2024 transaction volume reached RMB 175.49 trillion — approximately $24 trillion — representing 43% year-on-year growth. These figures derive from PBOC and CIPS institutional reporting rather than neutral third-party audit; they should be read as the system’s own account of its scale. China has also signed currency swap agreements with more than 40 central banks globally, enabling bilateral trade without dollar intermediation. The yuan’s reserve share sits at approximately 1.93% — still modest, but the infrastructure-building behind it has no equivalent among other dollar challengers.

Russia, operating under the most severe financial sanctions imposed on any major economy, has moved furthest from the dollar by necessity. Russian Finance Minister Anton Siluanov confirmed in 2025 that 99.1% of Russia–China trade is now settled in rubles and yuan, with no dollar leg. That figure is self-reported by the Russian government and has not been independently audited; trade data from China’s side broadly corroborates the directional claim, though not the precise percentage. Russia’s domestic SPFS messaging system — its SWIFT alternative — has been partially integrated with China’s CIPS on a bilateral basis, enabling yuan-ruble settlement without dollar clearing. Broader multilateral integration across BRICS payment systems remains in development.

India is the most strategically agile actor in this landscape. External Affairs Minister S. Jaishankar has been explicit that India has no policy to replace the dollar, describing it as a stabilising force in the international system. Yet India’s institutional actions tell a more complex story. As of February 2025, the Reserve Bank of India had authorised 123 correspondent banks from 30 trading partner countries to open 156 Special Rupee Vostro Accounts across 26 Indian banks — enabling bilateral trade in rupees without dollar conversion. In August 2025, the RBI deepened this further by removing the requirement for prior central bank approval to open such accounts. India is working the edges without abandoning the centre, a position that gives it strategic flexibility no other BRICS member can match.

Brazil and China formalised a local currency settlement agreement in March 2023, eliminating the dollar as intermediary for bilateral trade that reached $188 billion in 2024. When China buys Brazilian soybeans, the Chinese importer pays in yuan and the Brazilian exporter receives reais — no dollar touches the transaction. President Lula da Silva has been the most rhetorically forceful advocate of de-dollarisation in the Global South. The structural caveat is real: commodity pricing remains largely dollar-based, and Brazil’s reserve holdings are still predominantly in dollar assets.

Saudi Arabia is the most geopolitically significant actor in this shift. The petrodollar arrangement — under which Saudi Arabia priced all oil exports in dollars in exchange for American security guarantees — has been a structural pillar of dollar hegemony since the 1970s. The formal security arrangement underpinning that system expired without renewal in June 2024, though the original agreement did not explicitly mandate dollar-only pricing; the significance is directional rather than contractual. More concretely, Saudi Arabia joined mBridge — the multi-central bank digital currency platform — as a full participant in June 2024 and has signalled openness to yuan-settled oil purchases. The overwhelming majority of Saudi oil exports remain dollar-denominated as of early 2026. The direction is clear; the pace is deliberately cautious.

Geopolitical intent without technical infrastructure is rhetoric. What distinguishes this phase of de-dollarisation from earlier waves is that infrastructure is now being built and, in key cases, operationally tested. The systems below span a spectrum from fully operational to early pilot — the table distinguishes each clearly.

The most architecturally significant of these systems is mBridge — the only one that represents genuine multilateral central bank cooperation on alternative settlement. What began as a BIS Innovation Hub research project in 2021 reached minimum viable product status by June 2024. In October 2024, the BIS withdrew, citing both technical maturity concerns and a structural problem: the BIS cannot support a platform potentially accessible to sanctioned states, and the 2024 BRICS summit had raised the prospect of Russia and Iran joining. The BIS’s exit did not halt operations. The Bank of China (Hong Kong) announced its first fully automated mBridge transactions that same week. A UAE official confirmed hundreds of transactions worth billions of dollars had been processed.

mBridge’s significance is architectural, not volumetric. It is the first operational proof that sovereign central banks can settle cross-border transactions in multiple digital currencies simultaneously, in real time, without a correspondent bank chain and without SWIFT. That it remains small is not the point. That it works is.

The BRICS Unit occupies an entirely different category. The instrument — a digital settlement token backed 40% by gold and 60% by a BRICS currency basket — was piloted on October 31, 2025 by IRIAS, the International Research Institute for Advanced Systems, a Russian-linked academic body. Only 100 Units were issued. No BRICS central bank has adopted it. No BRICS government has endorsed it as official policy. At the July 2025 Rio summit, BRICS leaders explicitly confirmed that no common currency or formal joint settlement instrument would be launched in the near term. The Unit is a researcher prototype — directionally significant as a proof of concept, not as a functioning system.

The sceptic’s case is grounded in real structural facts. SWIFT now connects 11,500 financial institutions in over 200 countries. The dollar’s reserve share, despite three decades of decline, remains at nearly 57% and has never fallen below 50%. The yuan’s reserve share sits at approximately 1.93% — barely moved since its 2016 SDR inclusion. The dollar accounts for approximately 47.6% of all SWIFT international payments as of mid-2025, against the yuan’s sub-6% share.

Four structural pillars reinforce this dominance. First, the depth of US capital markets — in volume, liquidity, and legal predictability — is unmatched globally. No rival market can absorb sovereign reserve flows at the same scale. Second, the dollar’s open capital account allows unrestricted investment flows, a feature the yuan cannot offer without exposing the PBOC’s domestic monetary policy tools to external pressure. Third, decades of institutional trust — in US courts, contract enforcement, and property rights — are not replicated quickly. Fourth, network effects: the more institutions settle in dollars, the more costly it becomes for any individual institution to stop. These four pillars did not appear in 2022. They have been compounding since 1944.

The IMF’s exchange-rate-adjusted COFER analysis, published October 2025, made the key methodological point: once currency valuation effects are stripped out, the dollar’s reserve share has held considerably steadier than unadjusted figures suggest. Much of the apparent decline reflects dollar depreciation, not active diversification. The Lowy Institute’s 2025 analysis reached a blunt conclusion: BRICS is too heterogeneous, and India and China too strategically rivalrous, for the deep financial integration a genuine dollar alternative would require.

All of that is true. None of it is the point.

The strategic significance of de-dollarisation is not whether the dollar falls below 50% of reserves. It is whether the marginal transaction — the oil deal, the infrastructure loan, the commodity settlement — increasingly has a functional alternative to dollar intermediation. The United States’ ability to sanction any actor depends on that actor needing access to dollar clearing. If they don’t — if a functional bilateral settlement network is available — the sanction loses its edge. That erosion of coercive leverage is already happening at the bilateral level, even as the headline reserve numbers remain stable. Volume share and coercive leverage are not the same thing.

In November 2024, President-elect Donald Trump threatened 100% tariffs on any BRICS member pursuing de-dollarisation or backing an alternative currency. After taking office, he reiterated the threat in February 2025. The intent was deterrence. The effect was more complicated.

Indonesia publicly distanced itself from de-dollarisation rhetoric. India maintained its posture of quiet bilateral engagement rather than bloc-level currency politics. These were genuine deterrence wins. But the broader signal ran the other way. When Trump followed with additional tariff threats at the July 2025 BRICS summit in Rio de Janeiro, Brazil’s Lula pushed back directly, Egypt’s Prime Minister reaffirmed local currency commitments, and several BRICS members issued a joint statement backing cross-border payment diversification. What the threats accomplished, in practice, was to confirm for every emerging market central bank watching that dollar dependency carried political risk, not just financial risk. When the issuer of the reserve currency threatens retaliation against countries for diversifying their reserves, the case for diversification makes itself.

The Federal Reserve’s July 2025 analysis documented that gold’s share of official reserve assets has more than doubled — from below 10% in 2015 to over 23% now. The Fed is precise about the cause: the increase is predominantly a price effect, with gold prices up over 200% over that period. Physical gold holdings increased by less than 10%. Increases in gold reserves are generally not associated with a decline in dollar reserves — except for China, Russia, and Turkey, where active accumulation and deliberate reserve reallocation are documented.

The logic is not difficult to understand. Gold pays no interest. It has no issuer that can be sanctioned. It cannot be frozen by a foreign government’s executive order. For a central bank that watched $300 billion in sovereign assets frozen in a single week in 2022, those characteristics are not abstract. BRICS member states collectively hold over 6,000 tonnes of gold reserves — a figure that informed the design of the IRIAS Unit pilot, whose 40% gold anchor was conceived as collateral basis for a future BRICS settlement instrument. That instrument remains a prototype, not a state-level commitment. But the gold accumulation behind it is real, and its logic is clear.

Reserve currency transitions are generational. The British pound’s decline from global reserve currency to a marginal share took from roughly 1944 to 1980 — thirty-six years, during which the United States held decisive economic and military dominance, and the world genuinely needed dollar-denominated reconstruction financing. None of those conditions exist for any current challenger. The yuan faces capital control barriers. The euro lacks a unified fiscal counterpart. Trust — the foundational requirement of any reserve currency — is not manufactured by infrastructure alone.

What the current moment represents is not a transition but a fragmentation: a partial, uneven, politically motivated movement away from exclusive dollar dependence toward a more complex multi-currency world. That fragmentation is already happening — in the bilateral trade corridors between Russia and China, China and Brazil, India and the UAE, Saudi Arabia and China. It is happening in the payment infrastructure being built through CIPS, mBridge, and India’s Vostro network. It is happening at the researcher and policy level through the IRIAS Unit pilot and the BRICS Pay development effort — neither of which is operational at scale, but both of which signal where political intent is heading. And it is happening in the reserve decisions of central banks that can no longer assume their dollar assets are politically secure.

The institutions that define the standards of this new infrastructure — the messaging protocols, the settlement rules, the governance frameworks — will hold structural leverage in the financial architecture of the next fifty years. China’s CIPS is a deliberate attempt to make Chinese infrastructure the default for yuan-denominated settlement, exactly as SWIFT became the default for dollar-denominated settlement. Whether that attempt succeeds depends not on technology alone, but on trust. And trust, in monetary systems, is the one variable that cannot be engineered on a timeline.