Leaving the dollar — a thorny issue

THE movement towards dedollarisation has accelerated in recent years as countries seek to reduce their dependence on the US dollar for a variety of reasons.

In Malaysia, this topic has again gained traction when it was reported that China has executed its first outbound digital yuan payment to Malaysia for a 43,000 yuan (around RM26,000) shipment of fresh durian.

The best part? The transaction was completed in 30 minutes.

This comes as China fast-tracks its efforts to establish its own global settlement network within the South-East Asian region, away from the traditional Society for Worldwide Interbank Financial Telecommunication system, commonly known as Swift.

In Singapore, it was reported recently that DBS Bank Ltd is seeing an increase in demand for yuan-denominated trade settlement and financing even as Chinese companies continue to enhance their business relations with Asean and Asia.

The yuan is becoming more popular internationally.

The concept of dedollarisation and the increasing use of the Chinese currency is particularly important for Malaysia, which has both the United States and China as large trading partners.

But what does it mean for the country if the Chinese yuan takes centrestage, and the greenback a backseat?

Socio-Economic Research Centre executive director Lee Heng Guie notes that the recent yuan digital payment transaction for the purchase of fresh durian is part of ongoing efforts to deepen both countries’ trade settlements using local currencies (the ringgit and yuan).

“Malaysia and China’s trade settlement using local currencies reached 25.6% by late 2025, up significantly from 1.2% in 2009.

“The bilateral transactions using the ringgit and yuan hit 18% in mid-2026, emphasising that the shift minimises exchange rate risks rather than completely abandoning the US dollar,” Lee tells StarBiz 7.

He believes that having the Chinese currency replace the US dollar in global payments “will take a long time”, driven by key factors like restrictive capital controls to regulate the internationalisation of the yuan, deep dollar liquidity in the capital market and financial system, and global trust in financial institutions.

Most large banking systems are built around the US dollar, making it hard for countries to switch quickly.

Sunway University professor of economics Yeah Kim Leng says as China continues to expand its role in global trade and the digital yuan payment system gains broader acceptance among trading partners, the share of yuan settlement will likely rise steadily over the next five to 10 years, moving closer to China’s share of world merchandise trade.

“Yet, whether that convergence fully materialises will depend on sustained capital account liberalisation, deeper offshore liquidity and the resilience of bilateral trust in an increasingly fragmented global order,” he says.

Yuan dominance aligns with Malaysia’s largest trade relationship whereby China accounts for over 24% of imports and offers cost efficiencies through direct ringgit-yuan settlement, already accounting for a quarter of bilateral trade, he says.

“However, it risks replacing one dependency with another, exposing Malaysia to China’s monetary policy, limited yuan convertibility, and geopolitical entanglement with the United States.”

Yeah says the 30-minute durian trade settlement between China and Malaysia is a genuine demonstration of China’s technological strength in cross-border payments, showcasing the digital yuan’s ability to bypass Swift’s correspondent banking delays and reduce transaction costs, which is a clear competitive advantage for perishable goods and efficiency-driven trade.

“However, this does not ‘seal’ the yuan’s position as the world’s most important currency given structural constraints,” Yeah says.

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid opines global economies will want to shift to non-US dollar trade settlements as a means to manage currency risks and to ensure a more stable and predictable environment when it comes to currency arrangement.

“Already, Bank Negara Malaysia has introduced the local currency settlement framework for the Indonesian rupiah and Thai baht and there is also a ringgit-yuan bilateral arrangement.

“According to the Finance Ministry, a total of RM82.1bil had been settled in local currencies, comprising RM62.6bil with China, RM10bil with Thailand and RM9.5bil with Indonesia.

“Perhaps, with technology embedded in payment systems such as stablecoins, the future trend of international trade settlements will see local currency used as the main trade settlement,” Mohd Afzanizam says.

One of the main advantages of dedollarisation is the reduction of exchange-rate risks and transaction costs.

Traditionally, many transactions between Malaysia and China were settled in US dollars, requiring businesses and companies to convert ringgit into US dollars before converting them into Chinese yuan, therefore increasing costs and at the same time, exposing businesses to fluctuations in the greenback’s rate.

Yeah says for Malaysia, gradual de-dollarisation offers the benefit of reduced US dollar dependency, lower transaction costs, and potential ringgit appreciation, but it also raises risks like US trade friction and potential loss of investment, given that the United States accounts for nearly 15% of Malaysia’s exports.

Ultimately, he says – Malaysia’s most prudent strategy is not a binary choice but a pragmatic diversification, using each currency where it offers the clearest advantage while preserving neutrality and resilience in an increasingly fragmented global order.