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India’s New Foreign Trade Policy Aims to Destroy Dollar Hegemony

The Chinese yuan may be the perfect foil for the rupee to usher in a new multipolar order of global trade

indian new trade policyIt came into force on April 1st. boost Export and maintain foreign exchange reserves.

India’s exports in 2022 were $453.3 billion. 14.6% Up year-on-year despite global economic slowdown tradeIndia has become the fifth largest economy in the world last september $3.18 trillion despite slowdown due to Covid-19 pandemic 5 trillion dollars 2 more years.

in a strong economy growth According to India’s Commerce Secretary, Sunil Barthwal, India is poised to trade in rupees with countries facing severe dollar shortages. Director General of Trade and Industry (DGFT) Santosh Kumar Sarangi has set a national goal of $2 trillion in exports of goods and services by 2030. According to Sarangi, failure to meet export obligations. The scheme, which will run until September, aims to settle trade disputes more quickly.

Indian rupee to the world

The rupee’s global push has taken a blow to the arm after 18 countries including Russia, Germany, Singapore, Israel and the UK agreed to trade in India’s own currency. India’s central bank India Reserve The Bank of India (RBI) recently authorized these countries to pay for their imports in rupees. The move will reduce India’s $233 billion trade deficit between April 2022 and her January 2023.

India’s trade with its South Asian neighbors such as Nepal, Bhutan, Bangladesh and Sri Lanka also BRICS Members are driving the de-dollarization of global markets.

Last month, the Indian government announced that the RBI has approved 60 requests from various banks in these 18 countries to open a special Vostro Rupee Account (SVRA) that allows foreign banks to settle payments in rupees. .

Indian importers make payments in Rupees. SVRA The exporter receives payment from the foreign partner’s SVRA. The Central Bank of India has also agreed to use these SVRA surplus rupee balances to pay for projects and investments, manage import prepayment flows, and invest in government securities.

The RBI’s new norms are good news for India as it assumes the rotating G20 presidency this year. New Delhi wants to use this elite global economic club to promote international trade settlements in rupees, he said. He believes that rupee trading will help some developing countries and developing economies facing currency problems. He reached broad consensus on these lines at the G20’s first Trade and Investment Working Group (TIWG) meeting in Mumbai, India, in late March.

Time to End Dollar “Bullying”

The debate to end the dollar’s dominance in global trade has reignited as economies around the world, especially emerging economies, are feeling the knock-on effects of tightening US monetary policy. Another important factor is that Washington can use its currency as a powerful tool of political blackmail and coercion against countries it sees as adversaries. From Cuba to Iran to Syria to Russia, the US has been accused of arbitrarily imposing sanctions on countries to advance its own economic interests while pursuing irresponsible monetary policies.multiple experts quoted The weaponization of the dollar as a trigger that could end its reign as the world’s most powerful currency.

U.S. sanctions against Russia over the Ukrainian conflict that began in February 2022 intensified the move to ditch the US dollar. The punitive measures froze foreign assets of Russian financial institutions and cut several major Russian banks from his SWIFT system. This presents a growing risk for the rest of the world, including India and China, that the US will use the dollar for geopolitical and expansionist gains. New arrangements are needed and currencies such as the Chinese yuan have the opportunity to play a key role in providing such alternatives.

Plans are underway in many countries to de-leverage the SWIFT system through innovative financial mechanisms that are gaining momentum. These measures would limit the system as a tool for the US and its coercive tactics. At , discussion of reducing the reliance on US dollars, euros, yen and sterling for financial transactions and instead making payments in currencies topped the agenda. local currency.

In January, South Africa’s Foreign Minister Naledi Pandor said in an interview with Sputnik that emerging BRICS economies want to find ways to bypass the US dollar and create mechanisms that are less biased towards wealthier Western countries. Said Saudi Arabia’s Finance Minister Mohammed Al-Jadaan echoed In January Pandor said oil-rich Sheikhdom was open to negotiations to settle oil deals in currencies other than the US dollar.

Rupee-Ruble Trade Not So Optimistic

India has been working overtime to boost the rupee for global trade, but the reality is far from ideal as the currency has depreciated significantly over the past year.

In the case of the rapidly developing bilateral trade between India and Russia, Growing Since the Ukraine conflict began, New Delhi has found a viable alternative.

India and Russia have decided to go through third countries such as the UAE, which have healthy relations with both countries. Also, since the emirate’s currency, the dirham, is pegged to the dollar, the dirham is globally stable. Both countries have come to understand that this is the best way to engage in bilateral trade and avoid dealing in rupees, rubles and dollars.

but a new approach contradict The Indian government’s bid to settle international trade in rupees, in line with an announcement made last July.

Rupee and ruble payment mechanisms have so far proven difficult. growing trade The imbalance between India and Russia and some other teething issues. Russian banks such as Sberbank and Gazprombank, which operate in India, also oppose building up the Indian rupee.

Besides, the rupee was lost 7.8% Last fiscal year, it was one of the worst performing Asian currencies, dropping more than 10% in 2022, its biggest since 2019-2020. Given such volatility, using the UAE Dirham help Facilitate further expansion of bilateral trade.

Foreigners are less enthusiastic about US Treasuries

Another important area where we have observed a de-dollarization trend is US debt. Statistics on foreign U.S. Treasury holdings in a particular month or year may simply reflect market volatility and the relative strength of the dollar, but long-term long-term trends are Banks are scooping up less U.S. Treasuries than they used to. .

For decades, foreign countries have sterilized much of the US deficit. In other words, other countries bought a large amount of the deficit that the United States financed with dollar-denominated debt. But this arrangement, a key element of the special status the dollar has enjoyed, has begun to dwindle in recent years. In fact, since 2014, foreigners have consistently been net sellers of government bonds.

Renowned American fund manager Luke Gromen I got it Between 2002 and 2014, foreign central banks purchased 53% of all US Treasuries issued. From 2014 to 2022, that figure is just 3%. In fact, China announced in 2013 that it would no longer increase its holdings of U.S. Treasuries, and has been a net seller of U.S. Treasuries for more than a decade.

This trend is expected to continue. And when fewer trades are settled in dollars, fewer dollars are recycled into traditional reserve assets such as Treasuries.

De-dollarized global trade

India and China have launched moves to de-dollarize global trade with Russia, with Brazil on board and South Africa on standby. This initiative unites the BRICS trade dots.India paid Russia saves estimated in UAE dirhams for crude oil purchases $3.6 billion in the process.

The yuan has established itself as a major global currency in recent years and threatens to overthrow the dollar as hegemon. The renminbi is currently the fifth largest used currency for payments, the third largest currency for trade settlements, and the fifth largest reserve currency.

Worse for some developing countries, it is increasing exponentially. rise The cost of borrowing dollars has fallen, limiting the growth of foreign trade. This is where relatively low-cost renminbi funding could further boost the renminbi’s global recognition.

RMB joined the IMF Special Drawing Rights (SDRMore) basket in October 2016, and the currency’s strength has grown significantly since then. According to IMF data, last year’s RMB accounted for his 12.28% of the SDR.

The prevailing dollar-dependence scenario could change in the coming years, as Beijing works overtime to leverage its currency as the world’s second largest economy. China’s Cross-Border Interbank Payment System (CIPS) is a viable alternative to SWIFT, and its digital currency (e-CNY) is a major player for facilitating transactions between Beijing and partners such as the Global South. It promises to become an efficient payment system. e-CNY could emerge as an important reserve currency and could break the dollar’s hegemony.

Indian rupee could double as foil to China’s currency in a multipolar world. Probability is high.

Historically, it is the depreciation of a currency that portends the decline of a hegemonic power. And the dollar could become an epitaph of American imperialism.

( India’s New Foreign Trade Policy Aims to Destroy Dollar Hegemony

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