“Let not Dollar supremacy be compromised”, Manmohan Singh

In his latest column, Manmohan Singh urged that India should not remove its dependence on the US Dollar
Currently, India is working on developing bilateral currency swap agreements with Russia and other countries
Dollar trade has outlived its utility and it is now doing more harm than good

During his stint as Prime Minister, the renowned Economist Manmohan Singh led a very timid and sheepish foreign policy for India. That is why even a normal act of India standing up for itself during PM Modi era is termed as hyper-nationalism by a group of intelligentsia.

Former Prime Minister on Modi government’s foreign policy

Manmohan Singh has woken up from his political hibernation. The man who refrained from responding after the ghastly 2008 Mumbai attacks has decided to pitch in with his ‘expert’ suggestions on the foreign policy of the Modi government. Manmohan published his opinion in Congress’ pet journal National Herald as well as The Hindu.

Singh started by asserting that the Russia-Ukraine crisis has the potential to change the world order. He rightly pointed out that the ongoing crisis has shattered the narrative that an interdependent world would be more peaceful in nature. Apparently, the more dependent a country is on another, the more the later one holds power to tighten its diplomatic stranglehold on the former.

Global Village is standing on the back of Dollar’s stability

Singh then proceeds to point out the importance of the Dollar in international economics. According to Manmohan, the US Dollar being designated as the reserve currency for international transactions has shielded the ‘Global village’ from disintegrating. “This ‘Global Village’ was built on the foundation of advanced transportation networks, cemented with the U.S. dollar as the reserve currency and fenced by integrated payment systems. Any disruption to this delicate balance runs the risk of plunging the ‘Global Village’ into disequilibrium and derailing the lives of all.” wrote Manmohan

Singh opined that India has also benefited immensely from Dollar trade. He credited India’s tripling of GDP in the last 3 decades, because it is an active participant in Dollar trade all around the world. Claiming that the Dollar trade has provided India with the opportunity to provide jobs to millions in country, he wrote, “India too has benefited enormously from being an active participant in this interconnected world, with a tripling of trade (as a share of GDP) in the last three decades and providing vast numbers of jobs”

Manmohan Singh seems to be against bilateral currency transaction

Singh cautioned about India starting bilateral trade relations with local currencies. He does not seem to be optimistic about India’s growth potential in future. Not just India, he also doubts whether those countries who have taken a stand similar to India in the ongoing crisis will be able to develop their economic clout.

Manmohan said that currently, the world is divided into two factions. One which supports Russia and the one which opposes it. The bloc siding with Russia does possess half of the world’s geography but this bloc has very little say in world GDP as it produces only 25 percent of the world’s economic output. On the other hand, the countries standing in opposition to Russia produce 75 percent of its products. Moreover, these countries are predominantly in favour of continuing Dollar’s hegemony in international trade.

Singh points out that trading with other countries (especially in the anti-Russia block) should be India’s foremost priority. He is critical of Rupee-Rouble transactions gaining entry into Russia-India trade relations. He believes that it will lead India into isolation in the global world order. “A reversal towards isolationism and protectionism will be foolhardy and calamitous for India.” writes Manmohan

With his credentials intact, Singh supports Dollar’s hegemony

To substantiate his point, Manmohan added that he was part of bilateral currency negotiations during the 70s and 80s. He said, at that time it was viable for India as trade with other countries ford a very small share of the economy, while in modern-day and age, it forms a large chunk of India’s economic potency. He warned that the long-term consequences of buying Russian oil bypassing Dollar trade will be harmful to exports of India.

Finally asserting his support for Dollar supremacy, Singh wrote, “In the long run, India stands to gain more from unfettered access to the western bloc markets for Indian exports under the established trading order than from discounted commodities purchased under new bilateral currency arrangements that seek to create a new and parallel global trade structure.”

The world is moving away from Dollar

Singh’s support for Dollar has come at a crucial juncture in international diplomacy. The world has finally realised that it faulted in giving ultimate authority to the American Dollar. Many countries are now whispering the question: Why should the United States’ currency be the standard around the world? Why should petrodollars be the dominant mechanism by which oil is bought and sold? Why should one currency be made so strong that any significant fluctuations in its value can turn the world economy upside down? Finally, why should the focus of all countries be towards ensuring that the stability of the U.S. dollar is maintained?

Dollar is not stable and can be used to strangulate a country

The American Dollar and its rates in the market are guided largely by whims and fancies of the US government. By changing its interest rates, the US can change the exchange rate of the Dollar with respect to other currencies. Other factors like difference in inflation rate between the US and its partners, public debt, also affect Dollars’ value in a huge way. Moreover, if it wants, the United States can unilaterally impose sanctions on countries, henceforth stopping them from availing benefits arising out of the Dollar based trade. To put it in simple words, by making Dollar a reserve currency in the globalised world order, the world has bestowed the US with the amount of power unforeseen in modern human history. Even the British Empire was not that powerful to cut down the supply chain of any country within half an hour.

Dollar has outlived its utility

World needs a departure from such a hegemonic trade. Dollar was the need of the hour when more than half of the world suffered from poverty, malnutrition, hunger, lower life expectancy. At that time, countries needed support from the most thriving economic power in the world. So, the US did not face much resistance in imposing its currency. However, tables have turned now.

The production houses are constantly shifting out of the American continent. After China got to its saturation point, India is the next emerging superpower. Yes, the country needs to trade as much as it can. However, it also has to diversify its portfolio. The weakening economies of Eurozone and USA do not inspire much hope in the minds of policymakers. Dollar trade is not the future, but a diverse portfolio full of bilateral trade is.

It’s better to develop bilateral currency exchange and work on stabilising them rather than depending on one currency. As the saying goes, power corrupts and absolute power corrupts absolutely. Dollar has outlived its utility.