The newly formed ASEAN China Gulf Economic Alliance is drawing worldwide attention for its scale and timing. With a combined GDP of over $25 trillion, this trilateral trade cooperation could reshape the global economic map. More importantly, it may challenge the current dominance of the U.S. dollar.
The ASEAN China Gulf Economic Alliance represents a shift in power, away from Western-centric systems, toward a more decentralized trade framework. This development marks a significant point in the global push toward the de-dollarization trend, especially amid rising geopolitical and tariff tensions.
The summit held in Kuala Lumpur in May 2025 brought together ASEAN nations, China, and the Gulf Cooperation Council (GCC). The three blocs agreed to enhance infrastructure connectivity, promote trade in local currencies, and coordinate development strategies. The decision is not just a diplomatic handshake. It is a strategic pivot that may impact currency market shifts and redefine global trade architecture.
Why the ASEAN China Gulf Economic Alliance Matters Now?
The world economy is at a tipping point. U.S. tariffs on China and some GCC nations have forced many countries to rethink their trade partnerships. ASEAN, with its growing middle class and strategic maritime routes, has found common ground with China’s Belt and Road Initiative and the GCC’s diversification plans. This trilateral trade cooperation offers a unified front to counterbalance U.S. and EU influence.
The timing couldn’t be more critical. As trade routes grow riskier and more politicized, the need for regional resilience grows. The ASEAN China Gulf Economic Alliance steps in as a stabilizer. It aims to:
- Simplify customs and tariff systems
- Facilitate investment in digital and energy infrastructure
- Enable the use of national currencies in cross-border trade
These steps not only ease trade but signal a broader intent to reduce dependency on the dollar. That’s where the de-dollarization trend begins to show real teeth.
The De-Dollarization Trend: Beyond the Headlines
The de-dollarization trend isn’t new, but the ASEAN China Gulf Economic Alliance gives it unprecedented momentum. Countries like China and Saudi Arabia have long explored non-dollar trade options. Now, with ASEAN’s backing, the initiative gains institutional weight.
For instance, the alliance plans to settle energy trades in yuan and dirhams rather than the dollar. This move alone could significantly alter currency market shifts. According to SWIFT, the dollar still accounts for over 42% of global transactions, but this share could decline if major blocs adopt local currency settlements.
Examples include:
- Recent China-UAE oil contracts settled in yuan
- Malaysia and Indonesia promoting local currency exchanges
- Singapore and Saudi Arabia launching cross-border payment pilot projects
These initiatives aren’t symbolic. They are operational and growing, signaling serious structural shifts in the global monetary order.
Currency Market Shifts and the Role of the Dollar
The U.S. dollar remains the global reserve currency, but cracks are forming. The ASEAN China Gulf Economic Alliance has initiated mechanisms that could reduce the dollar’s transactional demand. If energy, manufacturing, and services trade among member countries shift to local currencies, the dollar’s dominance will erode over time.
Currency market shifts like these tend to:
- Reduce foreign exchange reserves held in dollars
- Lower dollar-denominated trade volume
- Trigger volatility in forex markets
These shifts are already observable. In early 2025, the Chinese yuan accounted for 4.2% of global payments—its highest ever. Meanwhile, dollar holdings in global reserves dropped below 58% for the first time in over two decades.
These numbers may seem small but reflect a consistent and deliberate trend. The ASEAN China Gulf Economic Alliance isn’t just part of the shift. It is becoming one of its leading drivers.
The Impact on Global Trade: A More Multipolar System
The global trade landscape is transitioning from unipolar to multipolar. The ASEAN China Gulf Economic Alliance supports this shift by encouraging diversified trade routes and decentralized financial systems. As trade within the alliance grows, reliance on Western-dominated frameworks like the WTO or IMF may decline.
This impacts global trade by:
- Promoting South-South cooperation
- Enabling faster deal-making via regional agreements
- Allowing countries to avoid sanctions and restrictions tied to dollar-based transactions
For example, consider how Iran and Russia, already sanctioned, are eyeing this alliance as a platform to re-integrate into the global economy using alternative currencies. Their success will depend on how deeply the alliance commits to financial cooperation and bypassing traditional dollar systems.
Challenges the Dollar Faces from Trilateral Trade Cooperation
Trilateral trade cooperation of this scale presents serious challenges to dollar hegemony. Key concerns include:
- Declining demand for U.S. Treasury bonds
- Weakening of U.S. leverage via dollar-based sanctions
- Greater instability in currency pairings like USD/CNY and USD/AED
While none of this suggests an imminent collapse, the gradual erosion of the dollar’s influence is undeniable. Central banks in alliance countries are already increasing their holdings in gold, yuan, and euro to hedge their reserves. Sovereign wealth funds are rebalancing away from dollar-heavy portfolios.
The U.S. may retaliate by imposing stricter sanctions or tariffs. However, the alliance’s growing self-sufficiency could cushion the blow. Their control over vital resources like oil, semiconductors, and shipping lanes makes them less susceptible to external pressure.
What This Means for Traders and Investors?
Currency traders should pay close attention to these developments. The ASEAN China Gulf Economic Alliance is altering forex dynamics in real time. Traditional safe-haven currencies like the dollar and euro are facing growing competition from regional alternatives.
Watch for these signals:
- Spikes in yuan, dirham, and ringgit trading volumes
- Central bank rate decisions influenced by regional trade flows
- Increasing forex correlation between alliance currencies
Investors can expect more volatility in USD pairs. Hedging strategies may need to evolve as liquidity shifts toward emerging market currencies. Meanwhile, long-term asset managers might begin reallocating capital toward alliance-based infrastructure and energy projects.
A Look Ahead: Is the Dollar’s Decline Inevitable?
The dollar’s dominance won’t vanish overnight. But the ASEAN China Gulf Economic Alliance represents a long-term inflection point. If the bloc successfully implements local currency settlements and expands digital payment infrastructure, the dollar’s role will diminish gradually.
Already, regional payment systems are being interconnected. ASEAN’s QR code initiatives, China’s digital yuan, and GCC’s SWIFT alternatives suggest a parallel monetary architecture is being built.
This new system may coexist with the dollar in the short run. But over the next decade, it could reduce global dependence on the greenback in a way that’s not only possible—but probable.
Conclusion
The ASEAN China Gulf Economic Alliance is more than a regional pact. It is a bold move toward reshaping the global economic order. Its emphasis on trade in local currencies, infrastructure development, and trilateral trade cooperation aligns perfectly with the growing de-dollarization trend. The alliance’s strategies are already impacting currency market shifts and challenging long-standing trade norms. For now, the dollar stands strong—but the tectonic plates of global finance are shifting beneath it.
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This post is originally published on EDGE-FOREX.
