India Moves to Dedollarize
India is firmly pushing for the adoption of the rupee as an alternative to the dollar as a means of payment in its international trade. Traditionally, the dollar had been established as the standard currency for carrying out international trade dating back to 1973 when the United States and Saudi Arabia had the ‘Petrodollar’ deal. The deal involves the Saudis trading their oil in US dollars only while the Americans continue to supply the kingdom with unlimited streams of American military hardware. Ironically, the former US President, Richard Nixon eventually removed the dollar from the gold standard in 1971 making the currency a free floating tender.
The ongoing Russia-Ukraine war has polarized the support of world countries, with the United States leading its allied against Russia, while China, India and a few others are showing their indifference. With sanctions flying around from the US led group, India and China are putting measures in place to prevent being caught unawares. One of the primary measures being taken is the promotion of local currencies as legal tender for international trade. This is aimed at boosting exports to countries struggling with dollar shortages and others, suffering from Western sanctions.
The rising global oil and food prices in the aftermath of the Russia-Ukraine war have been trolling foreign exchange reserves of countries. This in addition to the gradual weakening value of the American dollar has started most countries in the world looking for alternatives to the American dollar.
New Delhi has distanced itself from the U.S.-led sanctions against Russia. It has, on the contrary increased trade with Moscow by buying oil at discounted rate. This development has led to the creation of rupee-ruble payment mechanism between the two countries. This framework would be adopted as the underlying template for other countries willing to trade with India in rupee. The list of these countries include Mauritius, Kenya, Tanzania, Israel, Germany, Oman, Malaysia and Singapore, each of whom had set up rupee accounts in Indian banks. India is also having discussions with larger trading partners, including its key oil suppliers Saudi Arabia and United Arab Emirates.
In addition to India, China and Russia are also pursuing the effort to wean themselves of the dependence on the dollar for international trade due to the deterioration in relation between Washington on one hand and Beijing and Moscow on the other.