Rupee-Riyal trade: There is no longer a Unipolar world where the US continues its hegemony. This massive churning is a result of back-to-back major geopolitical events like the US-China trade war, COVID pandemic and Russia-Ukraine war. The unyielding diplomatic power of Uncle Sam has eroded significantly. Emerging powers are now eyeing to increase their place in the newly shaping global order. However, this turbulence is not only limited to geopolitics but also to geoeconomics/International trade and currency markets. While the Indian Rupee is coming out as the biggest gainer, the dollar is losing its universal appeal.
Split in Petrodollar
Recently, the Foreign Minister of Saudi Arabia Mohammed Al Jadaan gave the biggest jolt to the dollar which it has suffered so far. In an interview at the World Economic Forum, the Saudi Minister hinted that Saudi Arabia may start trading in currencies other than the US dollars. He told Bloomberg that the Saudi Kingdom is ready to hold talks to do trade (Rupee-Riyal trade) in currencies besides the US dollar.
He said, “There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal.”
Just like conjoined twins, Saudi Arabia and UAE share similar outlook and follow similar policies. Both the Islamic monarchies together lead and shape the decisions of OPEC, the cartel of oil exporting nations.
Henceforth, it seems that the US dollar will complete a full circle when Saudi Arabia and UAE delinks oil exports from the US dollar. It’s not if but when, the time Saudi and UAE completely junk the US dollar, it will lose its dominance as a universal currency.
Also read: India and Russia have made themselves dollar proof
Saudi and UAE keen to ditch US dollar in their bilateral trade with India
In the interview with Bloomberg, the Saudi Foreign Minister further added that they are not ruling out any discussion that would help improve trade with countries around the world. To fructify the ambitious dream of Saudi’s Prime Minister Mohammed Bin Salman, the Kingdom has been heavily linking its economic progress with the Indian economy. For that they have been streamlining ways to improve bilateral trade with India including talks to do trade in our respective currencies.
Earlier, in September, 2022, India and Saudi Arabia discussed the possibility of starting a Rupee-Riyal trade to boost economic ties between the two nations.
Similarly, in November 2022, the central banks of India and UAE discussed ways to promote bilateral trade in Rupee and Dirham.
Also read: One more term for PM Modi, and the dollar is as good as dead
Hurdles and India’s steps to overcome it
However, there are pragmatic hurdles in materialising the content of these discussions. Currently, India is a net importer. As per official data, India’s total exports (Merchandise and Services combined) were around $ 61.82 Billion in December 2022. But the Overall imports in December 2022 were estimated around $ 73.80 Billion.
The trade deficit will mean that countries doing bilateral trade in Rupees will end up accumulating more Rupees than they need to transact with India. Currently, Indian Rupee has not achieved the recognition of international currency. So, with this surplus Rupees, these countries can’t go around the world doing trading in Rupees.
India has to iron out these same issues with Saudi and UAE who enjoy trade surplus in doing bilateral trade with India. In April-July, India’s imports from Saudi Arabia recorded a $15.5 billion figure. Whereas exports were at $3.5 billion.
Similarly, with the UAE, the exports and imports figures stand at $ 16.7 billion and $ 26.7 billion in 2021.
However, a lot of progress has been achieved on this front as well. More and more countries have started to show interest in learning the process by which they can do bilateral trade in Rupees with India. Apart from Russia and Sri Lanka, 35 other countries have shown interest in the INR trade settlement mechanism.
The simultaneous but contrasting journey of Indian Rupee and US Dollar have seen many developments adding to the momentum. But the materialisation of Rupee-Riyal trade and the hard breakaway of Petro-dollar will be the most devastating blow that will completely shatter the hegemony of US dollar as international currency.
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