Currency Swap Diplomacy and the De-dollarization Debate in Emerging Economies

Background: The expansion of bilateral currency swap arrangements and local currency trade settlement mechanisms among emerging economies, including agreements involving China, India, and several Gulf states since 2022, has intensified academic and policy debate regarding the prospects for meaningful de-dollarization of international trade and finance. Aims/objectives: This study examines the diplomatic motivations and practical effectiveness of currency swap arrangements in advancing de-dollarization objectives among participating emerging market states. Method: A qualitative analysis of bilateral currency agreement texts, central bank statements, and interviews with international monetary policy specialists was conducted covering developments between 2022 and 2024. Results: Findings indicate that currency swap arrangements have achieved limited but symbolically significant reductions in dollar-denominated trade settlement for specific bilateral relationships, while structural barriers including limited currency convertibility and shallow capital markets in many emerging economies constrained broader systemic de-dollarization. Diplomatic motivations often emphasized sanctions-resilience considerations alongside genuine economic efficiency rationales. Conclusion: The study concludes that currency swap diplomacy represents an incremental and politically motivated complement to, rather than a wholesale replacement for, dollar-centric international finance in the near term. Sustained progress toward meaningful de-dollarization will require deeper capital market development among participating emerging economies beyond bilateral swap arrangements alone, alongside greater institutional trust in alternative settlement infrastructure over the longer term.

Keywords: de-dollarization, currency swap diplomacy, emerging economies, international monetary system, sanctions resilience