- The Indian Government forges ahead with a ground-breaking agreement with the UAE to utilize the Indian Rupee for bilateral trade, forsaking the traditional U.S. dollar.
- The IMF, though having yet to see a specific proposal for a common BRICS currency, acknowledges slow but tangible shifts in the currency composition of reserves and trade.
Navigating the Evolution in Global Commerce
Stepping boldly onto the global stage, India, a key BRICS nation, is revolutionizing its approach to international commerce by advocating for local currencies in cross-border transactions. In a landmark move, India has persuaded the United Arab Emirates (UAE) to forego the conventional U.S. dollar in favour of settling bilateral trade transactions in the Indian Rupee.
A strategic meeting between Indian Prime Minister Narendra Modi and Sheikh Khaled bin Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi, culminated in an agreement to construct a real-time payment link for local currency remittances. As explained by the Reserve Bank of India (RBI), this payment infrastructure will streamline cross-border transactions, spurring economic cooperation between the two nations.
In the fiscal year 2022-23, India and the UAE recorded an impressive bilateral trade volume of $84.5 billion. Notably, these transactions, previously resolved using the U.S. dollar, will now utilize the Rupee, bolstering its international significance.
The Ripple Effect on the Oil Trade and U.S. Dollar
As one of the world’s top oil importers, India’s decision to employ the Rupee for global trade is expected to fortify its domestic economy. The agreement with the UAE, a member of the top ten oil exporting nations, represents a potential shake-up for the U.S. dollar’s dominance in international transactions and the oil trade.
In the previous fiscal year, India saved a substantial $7 billion by transacting with the Chinese Yuan for oil trade. This was a move necessitated by U.S. sanctions, leading to the laundering of Russian oil via Saudi Arabia and China. These nations then traded the oil to Europe, India, and other regions using their native currencies, thus bypassing the U.S. dollar.
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An Uncertain Future for a Common BRICS Currency
The International Monetary Fund (IMF) has yet to encounter a formal proposal concerning a unified BRICS currency. Nonetheless, it recognizes “slow-moving trends” suggesting an ongoing alteration in reserve and trade currency compositions.
Julie Kozack, Director of the IMF’s Communications Department, highlighted that any transition in the currency composition of reserves and trade is historically slow. She pointed out the gradual decline of the U.S. dollar’s share in global foreign reserves from about 70% in 1999 to nearly 58% by the end of the last year.
Despite media claims of a gold-backed BRICS currency in the works, Leslie Maasdorp, Vice President and Chief Financial Officer of the New Development Bank (BRICS Bank), downplayed such notions, describing the creation of an alternative to the USD as a “medium to long-term ambition.” Russia’s central bank governor echoed this sentiment, emphasizing the multifaceted challenges and complexity of implementing such a project.
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