Context: Reserve Bank of India (RBI) Governor Shaktikanta Das has recently said that India has no immediate plans for de-dollarisation. These comments came in the backdrop of U.S. President-elect Donald Trump’s threat to impose a 100% tariff on BRICS nations planning to have a common currency to challenge the dominance of the U.S. dollar in global trade.
Relevance of the Topic: Prelims- De-Dollarisation; Why is De-Dollarisation gaining traction?
What is De-Dollarisation?
- De-dollarisation refers to the process by which the countries seek to reduce their reliance on the US dollar in International trade and finance.
- The US dollar has long been the world's reserve currency, but its dominance is under threat.
- In recent years, there has been an accelerating trend towards de-dollarisation.
Why is De-Dollarisation gaining traction?
- Containing Risk Exposure: The over-dependence on a single currency exposes the nation to risks associated with:
- fluctuations in the value of the dollar.
- changes in US monetary policy.
- potential sanctions or restrictions imposed by the US.
- Rise of Cryptocurrencies: Cryptocurrencies, such as Bitcoin, are a new form of digital currency that is not subject to government control. This has made them an attractive alternative to the US dollar.
- Bilateral Trade Agreements: Increasingly, countries are entering into bilateral agreements to conduct trade in local currencies rather than using the dollar. This shift aims to enhance economic sovereignty and reduce transaction costs associated with currency conversion.
Global examples of De-dollarisation efforts:
- China: China is actively promoting Yuan through its Belt and Road Initiative & Yuan-based trade agreements.
- Russia: India and Russia are exploring a dynamic rupee-rouble rate to overcome dollar trade barriers in the wake of US sanctions on Russia.
- Proposed BRICS Currency: The BRICS countries are discussing the possibility of a common BRICS currency to reduce their reliance on the dollar.
The global movement toward de-dollarisation is a complex, gradual process driven by geopolitical and economic realities. The challenges include the inertia against transition to alternative currencies, huge investment to build robust-systems for non-dollar transactions.
Also Read: Trump threatens tariffs if BRICS adopt Common Currency