Dollar Hegemony Plagued Nations, Trade in Local Currency Route to Bypass
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New Delhi has made trading in national currencies one of its focus areas, having signed agreements with countries like Malaysia, UAE, Bangladesh, Russia, etc. of late.
Nations like India have long been plagued by the US Dollar's hegemony and they have now found a route to bypass it by inking agreements to conduct their trade in local currencies, an Indian expert has said.
The remarks of Dr. Anuradha Chenoy, the former dean of the School of International Studies (SIS) at India's premier Jawaharlal Nehru University (JNU) in New Delhi, come days after the South Asian nation announced national currency trade pacts with the United Arab Emirates (UAE) and Bangladesh.
The remarks of Dr. Anuradha Chenoy, the former dean of the School of International Studies (SIS) at India's premier Jawaharlal Nehru University (JNU) in New Delhi, come days after the South Asian nation announced national currency trade pacts with the United Arab Emirates (UAE) and Bangladesh.
India-UAE National Currency Trade Pact
The UAE is India's third largest trading partner after the United States and China.
Moreover, bilateral trade between Abu Dhabi and New Delhi has touched $85 billion and is expected to rise to $100 billion this fiscal.
The Gulf country is also a major destination for thousands of Indian workers and tourists.
The Memorandum of Understanding (MoU) for permitting exporters and importers of the UAE and India to pay in their respective currencies, which in this case, is the Rupee and Dirham, was signed by RBI Governor Shaktikanta Das and Khaled Mohamed Balama, the head of the UAE's central bank, earlier this month.
Indian Prime Minister Narendra Modi subsequently said that the MoU would make financial transactions between New Delhi and Abu Dhabi easier.
"It paves the way for enhanced economic collaboration and will make international financial interactions simpler. Our bilateral trade has grown by 20%. For the first time, we have achieved $85 billion trade and soon we will achieve the target of $100 billion. If we decide, we can cross this milestone before the G20 summit," Modi said.
India's Increasing De-Dollarization Efforts
Against this background, the retired JNU professor observed that there are multiple reasons behind New Delhi's push to abandon the US dollar.
"First, it saves transaction costs. Second, why have a third-party currency where you can do a bilateral currency swap? Third, you can save your dollars as their rate goes up and down which you cannot control and hence, why be subject to third-party rate fluctuations," Chenoy told Sputnik on Wednesday.
She added that there was an attempt to internationalize the Rupee to use it for bilateral trade, which the academic argued was the trend among all Global South countries now.
Chenoy stressed that the Global South nations have the confidence in their economies to show that they can do trade and why should they do it via the dollar when they can do it between two nations as these are bilateral arrangements.
Gulf's Remittance Connection With India
She pointed out that in the Gulf countries, there are a lot of remittances because a lot of Indians work there. The remittance money comes through the exchange, where Dirhams have to be exchanged for Dollars and again Dollars have to be exchanged for Rupees.
But why the labor, that is going to the Gulf nations and doing remittances, should waste their money in exchange rates all the time," Chenoy asked.
She explained that if a lot of currency exchange takes between two countries, and they have faith in their currency, it becomes an automatic, spontaneous reserve currency. For instance, their banks will hold Indian Rupees and our banks will hold Dirhams, or the Bangladeshi Taka.
Chenoy elaborated that in UAE or Bangladesh's case, the balance of trade will be easier because they will not be holding too many Rupees. Even though New Delhi is buying oil from Abu Dhabi, they are paying their Indian employees like drivers, accountants etc. who will exchange the Dirhams for Rupees whenever they return to India.
Also, India is developing an alternate mechanism to the Western-dominated SWIFT financial system for currency transfers and is shifting to the E-Rupee and the RuPay Card.
Chenoy elaborated that in UAE or Bangladesh's case, the balance of trade will be easier because they will not be holding too many Rupees. Even though New Delhi is buying oil from Abu Dhabi, they are paying their Indian employees like drivers, accountants etc. who will exchange the Dirhams for Rupees whenever they return to India.
Also, India is developing an alternate mechanism to the Western-dominated SWIFT financial system for currency transfers and is shifting to the E-Rupee and the RuPay Card.
America's Meddling in India's Neighborhood
She asserted that the process of India's transition to national currencies has been going on for years and after the Ukraine conflict, it has only increased. Because the US was threatening many nations, including New Delhi's neighbors with economic sanctions.
For example, US Secretary of State Anthony Blinken told Bangladesh that America would put sanctions if the elections there are not fair.
"But who's he to intervene in Bangladeshi polls," Chenoy commented.
"In this light, India-Bangladesh are also trying to do trade in their currencies. The dollar hegemony has long plagued these nations. But now they have found a route to bypass it," the geopolitical analyst opined.
On Tuesday, the maiden Rupee trade shipment from India's West Bengal state reached Bangladesh, Kamlesh Saini, an official of the Land Ports Authority of India confirmed.
"This shipment is in Indian Rupees, and it will give further fillip to exports," Saini said.
However, trade in local currencies is a process and it will take time to replace the dollar, Chenoy suggested.
"At the same time, America will put pressure on countries like India and try all kinds of tricks. Therefore, all these nations pushing for trade in national currencies must remain cautious, but ultimately they will have to move ahead with de-dollarization," she concluded.
