In the post-Second World War scenario, mostly western countries dominated the power structure of the world. They created international, regional, and purposive groupings to advance their agenda. With organisations like the International Monetary Fund (IMF), they advanced their economic monopoly. They made the dollar an ‘international currency’ and maintained their dominance. As money is the fuel of any state, it was easy to influence the political structure of the world’s countries. By weaponising dollars, they dictated the terms of the poor countries. However, this currency monopoly of the west has now started to break.
The rise of Bharat, overhaul in world politics, and regrouping of countries thereof have ignited a process to challenge this dominance of the west. Every organisation or symbol, created by the west to establish their monopoly, is being targeted. New structures and parameters are being drawn to determine the new world order. Countries are breaking the old system of the west and moving into the new world order. In this new system, Bharat is taking the lead to bring reform to world governance.
India-Saudi Discussion on Rupee-Riyal Trade
India’s Commerce and Industry Minister, Piyush Goyal, was on an official visit to Saudi Arabia from 18th to 19th September 2022. The visit was made to oversee the progress of India-Saudi Strategic Partnership Council.
Reports suggest that in the meetings related to economy and investment, the discussion was also held on the feasibility of institutionalising Rupee-Riyal trade.
Other than discussion on Rupee-Riyal trade, the two countries also talked on a wide range of topics such as institutional tie-up of the Export and Import Banks of the two countries, joint projects in third countries, mutual recognition of standards, and establishment of startup and innovation bridge. They talked about strengthening collaboration in infrastructure development, railways, industries, manufacturing, Pharmaceuticals, Automobiles, Petrochemicals, Specialty chemicals, technical textiles, mining, and increasing project exports from India.
Dollar Destabilisation Would Be Stopped
The institutionalisation of Rupee-Riyal trade is a very big move by the two countries. Considering the value of trade the two countries carry, it has the power to displace the dominance of the dollar in the world. The trade value of the two countries was USD 42.8 billion in the financial year 2021-2022. After the US, China and UAE, Saudi Arabia is the fourth largest trade partner of India.
As most of the trade is driven in the energy sector, it will also provide a soothing effect to dollar buoyancy in the economy. India’s energy bill was reportedly USD 119 billion in the financial year 2022. If the two countries agreed to trade in respective country’s currencies, then the large number of dollars that are burned in importing this crude oil would be stabilised.
De-dollarisation of the World
Saudi Arabia is not the only country to which India is trading in domestic currencies. Recently, the State Bank of India (SBI) had asked exporters of the country to avoid trade in dollars and other major currencies. According to reports, the SBI has said to its branches that “the country is facing a shortage of foreign currency due to higher import bills and weaknesses of Bangladeshi taka against dollar in recent times.” However, the top India bank has given a green signal to trade in Indian Rupee and Taka.
Following Russia’s ‘Special Operations’ in Ukraine, a mammoth of sanctions was imposed on Russian traders and their businesses. Russia is one of the largest producers of energy resources like coal, crude, and gas. Sanctions of the West provided energy deficit countries like China and India an opportunity to import energy resources at a discounted rate from Russia. Barred from trading in US dollars, Russian companies were searching for alternate currencies for the transaction, to bypass sanctions and continue with their exports. That is why Rupee-Rouble trade was allowed between India and Russia.
Further, Iran has also shown interest in supplying crude to India under Rupee-Rial mechanism. Following the American sanctions of Iran, India had to reduce its energy imports from Iran. But, when same situation arose after with Russia, India resorted to trade in domestic currencies.
PM Modi’s Efforts to Internationalise Rupee
Speaking about the internationalisation of Rupee, PM Modi. in a program of the Ministry of Finance and Corporate Affairs, had said, “It is necessary to focus on how to make our domestic banks, currency an important part of international supply chain and trade. We have shown in the last 8 years that if India collectively decides to do something, then India becomes a new hope for the world. Today, the world is looking at us not just as a big consumer market but looking at us with hope and confidence as a capable, game-changing, creative, innovative ecosystem.”
Following the government’s instructions, RBI established a mechanism for doing international trade in Rupee, instead of Dollar. According to the new arrangement, exports and imports will be denominated and invoiced in Indian Rupee. For this purpose, authorised Indian banks will have to open a Rupee Vostro account of the foreign bank. In other words, Indian banks will open a Rupee-denominated account with the foreign banks like HSBC, Russia’s Sberbank and VTB. These banks too will facilitate trade in Rupee.
Appraising about the new arrangements, RBI said, “In order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in Indian rupee, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in rupee…”
Since World War 2, the use of dollars in international trade has helped the United States to establish its hegemony in the world. The resilient currency provided the country with a stable economy and built a conducive environment for investments. Further, dominating positions in the International Monetary Fund and other multilateral organizations helped them tweak the financial and economic policies of the world. In a way, the road to superpower goes through the huge market expansion of the country, and so the American hegemony was established.
Revival of Internationalised Rupee
It is pertinent to understand that India had started to look for modalities of internationalisation of Rupee in early 2010s. In 2010, RBI commissioned a study called ‘Internationalisation of Currency: The case of the Indian Rupee and Chinese Renminbi by Rajiv Ranjan and Anand Prakash.’ In the subsequent year Shyamala Gopinath conducted another study called ‘An internationalised rupee?’ Both these studies advised cautious approach while adopting rupees in international trade. They suggested that India should first start to enhance acceptability of INR in the local region as was the norm before 1960s, only then should other countries be explored.
In the past, Rupee has been used for transactions for trade in countries like Singapore, Malaysia, Indonesia, Hong Kong, Sri Lanka, Qatar, UAE, Kuwait, Oman, Malaysia, and even the UK. There was a currency called Gulf Rupee. By the beginning of 70s, the domination of Rupee declined due to ultra-socialistic policies.
But, the economic rise of India has once again provided an opportunity to bring the golden age back to Asia. With about 18% of the world population and a GDP value of US $3.5 trillion, India is now a superpower in the world. A leading contributor to world peace, functional democracy, and responsible nuclear power, Bharat’s credentials are highly valued now. Nation’s stable economy, multicultural peaceful society, democratic political structure, and centuries-old civilization make it a respected and formidable power. Bharat’s one step means 1.4 billion steps in the direction of de-dollarisation of the world’s economy. As the Modi government is advancing in this direction, one more term of PM Modi in power would finally bring the end of dollar dominance in the world.
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