Business & Economy

Russia, India Agree on Need to Ditch USD for Trade in Local Currencies: Experts

18:27, 14 December 2023
© Photo : taken from social media
Dhairya Maheshwari
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US Dollar's share in global foreign exchange reserves fell below 59 percent, a 20 year-low in 2021. Since last year, Russia, China and India have taken policy measures to further reduce reliance on the greenback
Sputnik
There is a growing convergence of views between Russia and India on the need to shed reliance on the US dollar and switch to the use of national currencies in bilateral trade settlements, Indian experts have told Sputnik India.

Russian President Vladimir Putin told the year-end press conference in Moscow on Thursday that linking the national currency to the US dollar could lead to “severe socio-economic issues”.He warned that in certain cases, the economic hegemony of USD could undermine the “sovereignty” of a nation.

The Russian President stated that the western countries have “shot themselves in the foot” by restricting Russia’s ability to trade in USD and Euros in the wake of the special military operation last February.

Ever more nations were looking to “either diversifying their currency risks or trade in their own currencies” in the wake of unilateral sanctions against Moscow, including shutting out Russian banks from the SWIFT network, says Ambassador Rtn. Anil Trigunayat (IFS Retd), a former Indian diplomat to Jordan, Libya and Malta.

Trigunayat described the ongoing trend of transitioning to national currencies in global trade as one of the “most consequential fall out of the Russia-Ukraine conflict”.

“This has been treated as the weaponisation of financial instruments which undermined the confidence in the existing global financial institutions,” said the former Indian diplomat.

Switching to Trade in Local Currencies is in Economic Interest of Every Nation: Economist

Agreeing with the Putin’s views, Ashwani Mahajan, the co-convenor of Indian economic advocacy group Swadeshi Jagran Manch (SJM), underscored that it was in the “economic interest” of every nation to switch to trading in national currencies.
“But such a transition hasn’t been possible till recently because of the lack of viable alternatives. The US dollar and the Euro to an extent have been viewed as the only feasible currencies in the global trading system,” stated Mahajan, who is also a professor of economics at Delhi University (DU).
He, however, added that “new avenues” have been opening up since last year.
“It is an appropriate time to take advantage of this and switch to national currencies in bilateral trading settlements,” asserted the economic expert.
Mahajan noted that around 20 foreign banks have opened Special Rupee Vostro Accounts (SRVAs) in Indian banks since last year to facilitate settlements in INR.
India’s new Foreign Trade Policy (FTP) unveiled in March this year also calls for encouraging trade in INR to “disaster-proof” against economic contingencies such as dollar shortages or international currency shortages, officials have said.

Benefits of Trading in National Currencies

Mahajan recalled that India’s “dependence” on USD for trade settlements has worked against the country.
“We have faced challenges such as rising debt burden, increased imports' bill due to fluctuation in US dollar. Even though the INR has gained strength vis-à-vis non-US dollar currencies, it has been depreciating with respect to the US dollar. It has led to depreciation in our currency,” the Indian professor explained.
He suggested that trade in national currencies could help countries like India in “maintaining balance of payments”.
N Sathiya Moorthy, a Chennai-based policy analyst and commentator, also agreed that New Delhi and Moscow share a common interest in switch to trading in national currencies.
“In principle, trading in national currencies will help in putting checks to huge money leakages incurred in transactional costs (for USD at present),” Moorthy said.

He also pointed out that other nations have to “earn” USD through means of conducting trade with the US. “On the other hand, the US only has to print it, so to say. It is an unfair arrangement.”

As a “better and a fairer” alternative to trading in national currencies, Moorthy suggested that there could possibly be a mechanism to carry out international trade through Special Drawing Rights (SDRs).
“Bilateral transactions in multiple currencies across the world could create a huge, irreconcilable mess,” opined Moorthy.
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