- India moves away from the US dollar, choosing rupee for its crude oil transaction with the UAE.
- The switch underscores not only economic benefits but also a broader geopolitical shift.
The Catalysts Behind India’s Bold Move
On August 14th, in a pivotal shift, India and the UAE enhanced their trading relationship by finalizing a crude oil transaction using the Indian rupee instead of the traditionally dominant US dollar. This move wasn’t spontaneous; rather, it came as a culmination of a broader strategy. In July, both nations had already laid the groundwork by signing an agreement to settle trades in their respective currencies. This evolution does more than just eliminate the necessity of dollar conversion – it dramatically reduces transaction costs.
🚨JUST IN: First ever crude oil transaction in local currency undertaken between India and UAE!
— JackTheRippler ©️ (@RippleXrpie) August 15, 2023
The implications of this shift extend beyond mere trade. It broadcasts a political undercurrent, showcasing India’s strategic intent to decrease its dependence on the US dollar. This commitment isn’t confined to the UAE. On the contrary, it reveals an overarching objective: to bolster India’s ties with other global players without the dollar acting as an intermediary.
Further sweetening the deal, the July agreement laid provisions for the establishment of a real-time payment linkage, greatly enhancing the efficiency of cross-border fund transfers. In the near future, cardholders from both countries will find their domestic cards compatible in either nation, thanks to the impending interlinkage between India’s RuPay and the UAE’s UAESWITCH.
De-dollarization vs. Reality: A Balance to Maintain
Nevertheless, the ambition to globalize the rupee faces challenges. Even with this progressive move, local currency trade volumes appear minuscule against the backdrop of India’s whopping $1.2 trillion goods trade from the last fiscal year. While the path to globalize the rupee seems filled with challenges, one cannot overlook the opportunities arising from India-UAE collaborations, especially given the UAE’s status as India’s second-largest remittance source.
Parallelly, the BRICS economic alliance, in its preparation for the upcoming summit, highlighted a key message: de-dollarization won’t be a summit agenda. South African Ambassador Anil Sooklal emphasized the focus on promoting local currencies within the bloc, distinguishing the alliance’s operations.
“Trading in local currencies is firmly on the agenda,”
said Sooklal. Moreover, he clarified,
“BRICS is not calling for de-dollarization. The dollar will continue to be a major global currency.”
In essence, while India’s rupee-based trade with the UAE speaks volumes about its intent, the path to globalizing the rupee and the broader sentiment in global alliances like BRICS demand nuanced understanding and strategy.