While the United States continues supplanting the Dollar with a digital currency, many nations are exploring methods to refrain from using the Dollar in international transactions. Countries want to swiftly dispose of the Dollar (and possibly the other hegemon, the upcoming Yuan) that they were previously required to purchase for cross-border trade operations.
As in the past, India demonstrates to all that it intends to consolidate its position as an independent actor on the international stage. The most recent in the series was inking an agreement with Malaysia on converting bilateral commerce into rupees, the annual volume of which is estimated to be $19 billion.
Now, 18 countries have approved commerce to be conducted in Indian Rupees. India is making the most of a de-dollarisation that is taking place on the international market, although the world economy as a whole is in a recession.
Businesses can purchase goods from other countries and pay for them using rupees instead of their previous currency. The Reserve Bank of India (RBI) has approved using the Rupee in eighteen countries, including Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda and the United Kingdom.
The initiative is effective as the VOSTRO accounts are established in Indian banks.
Advantages for India
Because trade participants do not export foreign currency from another country but rather purchase (or produce) products, which they then sell domestically, such a scheme enables the two nations to increase the volume of mutual investments.
These nations will invest this money in Indian businesses and purchase products and services from India. It will reduce transaction costs related to trade and increase trade. India is one of the most important trading partners for many nations that use the Rupee as their settlement and invoicing currency; this will reduce the exchange rate risks these merchants face on the international market.
Additionally, it will reduce India’s trade deficit. From April 2022 to January 2023, India’s merchandise trade deficit, export minus import, was $233 billion. As a result, India will be able to export more, as more nations are willing to conduct business in Rupee.
It will facilitate the expansion of financial markets, and nations possessing a surplus Rupee will be able to earn similar or significantly more interest than on Dollar-denominated U.S. sovereign investments.
In response to Western sanctions against Russia, the BRICS group of nations has already attempted to de-dollar the international market. It permitted China to emerge as a potential U.S. alternative. This is untenable to India and most Asian nations, as China is just as much a bully as the United States. China is involved in violent territorial disputes within its periphery, encompassing countries which are regional economic, cultural, and military powers. The United States’ neighbourhood is friendlier in comparison.
India, on the other hand, has only one dispute, and that is with Pakistan (and China, of course), a country that exhibits symptoms similar to a virus – an entity that cannot remain in a stable state, cannot develop, and cannot survive on its own and therefore depends on willing hosts like China, Turkey, and the United States for sustenance. India and all nations in the Pakistani neighbourhood and beyond suffer from terrorism.
Recently, hostility could have developed between Malaysia and India, but trade between the two nations has switched to Rupee. As hard power symptoms affect the United States and China, India’s soft power is finding its merits.
If and when BRICS implements Russian President Vladimir Putin’s plan to introduce a regional basket-pegged common currency, the expanding Rupee trade will play a significant role. It will enhance the Rupee’s bargaining position relative to the Yuan and the Ruble. Compared to the Chinese Yuan, BRICS, Asian, African, and even European nations will be more tolerant of the Indian Rupee as the prevalent currency. BRICS will require India as a go-between other blocks.
India is also not treading on Dollar territory as it discusses conducting non-oil trade in Rupee with OPEC nations such as the UAE. India is entering an area where de-dollarisation is occurring due to the United States’ self-goals and the efforts of Russia and China. India prefers international trade that the Yuan does not dominate or is an alternative. It even rejected the Russian offer to peg Yuan for the Rupee-Ruble oil trade and instead chose UAE Dirhams.
An uncertain narrow band
The Rupee-Yuan struggle is occurring within a narrow range. Yuan controls only about 7 per cent of global currency trading. It continues to lag behind the Dollar, which dominates approximately 90 per cent of global currency commerce. Despite the accelerating global influence decline, Washington remains a formidable adversary capable of causing significant problems for any nation, including China. For the United States, the de-yuanisation by the Rupee is more acceptable.
It is still difficult to predict whether the Chinese Yuan will become the primary global trading currency or whether the Indian Rupee will be able to compete with it, but the trend is already incontrovertible.