As the global order fragments, a key question arises: can de-dollarisation – that is, the gradual reduction of reliance on the US dollar in trade, finance and reserves – help restore policy autonomy in emerging markets (EMs), or will it constrain them further?

^{by Chris Loewald and Manisha Morar}

This note reviews the evolution of EMs’ integration with the global financial system, analyses the impact of geoeconomic fragmentation on capital flows, and assesses the role of the US dollar in EM policy choices.

On balance, integration is supportive of both growth and macroeconomic policy space, despite cyclical pressures and widespread dollarisation of borrowing.

In South Africa’s case, the constraint posed by financial integration lies primarily in the weak comparative efficiency in using capital to finance increases in potential growth.

De-dollarisation will neither resolve macroeconomic instability nor increase policy sovereignty.