New Delhi: US President-elect Donald J. Trump’s broadside against the BRICS grouping over the “de-dollarisation” rhetoric, would surprisingly find purchase in New Delhi, given that India has consistently dismissed the replacement of the dollar as a global reserve currency.
The loudest support for a BRICS common currency or a move away from the US dollar as the global currency for trade has primarily been from Moscow, as a part of its efforts to circumvent the Western dominated global architecture, including the international financial system, explained Harsh V. Pant, the Vice President of Studies and Foreign Policy at the Observer Research Foundation (ORF), to ThePrint.
External Affairs Minister S. Jaishankar, last month during his visit to the US, made it clear that New Delhi has “never actively targeted the US dollar,” emphasising that it is not a part of India’s “economic policy, political or strategic policy”.
“We often have trade partners who do not have dollars to trade. So we now have to look at whether we forgo dealings with them or do we find some settlement which works otherwise. So there’s no, I can say, malicious intent vis-a-vis the dollar in doing this. We’re trying to do our business,” Jaishankar said at the Carnegie Endowment in October.
Trump had slammed the BRICS for attempting to trade in local currencies, promising to impose 100 percent tariffs if its member nations continue to “move away from the dollar”.
His comments indicate a certain insecurity amongst American leaders as the global reserves of the US dollar held by central banks has steadily declined in the last 25 years, especially with the introduction of the Euro by the European Union and the recent push for settlements of trade in local currencies by developing countries, including India.
In 1999, around 71 percent of the assets of central banks across the world were in US dollars, which has fallen to about 58 percent in the second quarter of 2024, according to data from the International Monetary Fund (IMF). The Euro has grown to about 20 percent of all reserves held by central banks across the world in the same period.
“For India, there is no rational economic, political or strategic reason to de-dollarise. We are strategic partners of the US, are comfortable with the use of the dollar, and have benefitted from it,” Pant told ThePrint.
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Why has de-dollarisation rhetoric come into focus?
A number of countries, especially Russia and China, have faced the US’ ire in recent years, that include actions including freezing Moscow’s dollar held assets and seeing the country kicked out of Society for Worldwide Interbank Financial Telecommunication (SWIFT) network due to its war with Ukraine.
Nearly 50 percent of Moscow’s central bank assets–roughly $300 billion–was frozen after Russian troops entered Ukraine in February 2022. Around $207 billion was held in euro assets, $67 billion in US dollar assets and $37 billion in UK pound sterling assets. Another member of BRICS, Iran, has also faced difficulties from the international financial system given the numerous sanctions it has faced over its nuclear programme.
China has slowly been insulating itself from potential economic actions by the US–as seen in the case with Moscow–by promoting the use of local currency settlements (mostly in the renminbi yuan) with certain countries, especially in the developing world, foreign policy analyst Swasti Rao explained to ThePrint.
“If you look at China, it has taken steps to safeguard itself from potential sanctions by the US in the future. Countries feel safer using other currencies because of the weaponisation of the dollar in recent years,” added Rao.
However, the usage of local currencies does not indicate a willingness for a new BRICS currency from even Beijing. The renminbi is only the seventh most held currency in the world, far below the Japanese Yen, the UK Pound Sterling, Australian dollar, and even the Canadian dollar.
“The dominance of China and Russia in BRICS has led to conversations such as de-dollarisation. But the likely beneficiary of a weakening acceptance of the dollar globally would be Beijing and that is not in India’s interests,” Pant said.
The ascendance of Chinese yuan
China has not loudly backed the idea to target the US-led financial systems given that both America and the European Union remain some of its most important trading partners. There is little chance for a new BRICS currency, according to Rao, but there might be alternative architectures slowly developed if sanctions are further applied.
The recent BRICS declaration from Kazan, Russia, saw no mention of a new currency, but rather a deep concern over “unilateral coercive measures, including illegal sanctions” on the global economy. Russia has faced the brunt of economic sanctions, specifically those targeting its reserves of US dollars or dollar backed assets both in North America and the European Union.
“From a political perspective there is a logical argument for trade in local currencies. Why should the US hold the purse strings over my bilateral trade? However, for India there are already cases where trade is settled in local currencies. This does not mean that India is in support of broader de-dollarisation,” explained Rao.
Since the war with Ukraine, trade between India and Russia has expanded greatly, especially as New Delhi benefited from cheaper oil purchases from Moscow, which crossed $50 billion in the financial year 2023-24.
The settlement of payments for the purchase of Russian oil has primarily been in Indian rupees, but companies have also used the Chinese yuan and the UAE dirhams in some instances, as reported by ThePrint last year. All of this is due to the inaccessibility of the Russian economic system from the dollar market.
“Broader de-dollarisation does not make strategic sense for India. It is based on targeting the US and the only beneficiary from such a move would be China. India is not inclined to support the ascendance of the Chinese yuan as a reserve for global trade,” said Pant.
(Edited by Tony Rai)
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