First the news. Recently, the Reserve Bank of India (RBI) issued new rules that allow exporters and importers, both domestic and global, to open Indian bank accounts without approvals. They need to follow the KYC norms. Quite naturally, the transactions in these bank accounts will be in Indian Rupees. The move is primarily targeted at the traders in BRICS nations, and those in India who deal with them.
The insidious idea is simple: India wishes to wean away from the dollar, and encourage traders in BRICS to shift to rupee. If successful, it is one of the surest ways to pre-empt the predatory moves of the US President Donald Trump to shackle and cripple the Indian economy. The plan is to avoid dollar-based payments.
The membership of BRICS has doubled from the original five. The bloc includes Saudi Arabia, UAE and Iran, which export oil and gas to India. If a bulk of these payments is in rupees, India will have better chances to confront Trump. The US president has warned that if BRICS undermines the dollar, he will impose higher sanctions, or tariffs of 100 per cent on Indian goods.
The $500 billion question is: Is this a bold gambit, or is it akin to going down a rabbit hole? Things can turn ugly and nasty. The US realises that if BRICS acts in concert, it can dilute the supremacy of the US dollar in the global system. For the US, it is an existential threat. It has a debt of $36 trillion dollars. It keeps printing dollars to finance its massive deficits, which often crosses $2 trillion a year.
Many “pundits” in the US have turned into MAGA followers. They dismiss the possibility of a dollar-free global order as “delusional.” But the sober analysts feel there may be a danger to the dollar. Rodrigo Carrillo, an Australia-based banker, says, “The dollar remains dominant for several reasons. It is the lending currency of the world. But if Trump increases pressure on BRICS, it may well accelerate a move away from the dollar.”
Other nations have tried to ‘kill’ the dollar. After the US-led West imposed sanctions on Russia for the latter’s war on Ukraine, the former seized Russia’s and Russians’ assets in European and American banks. The idea was to bring Vladimir Putin down to his knees. The strategy did not work. The reason: Russia started dealing in non-dollar currencies to boost trade.
Saudi Arabia, which hopes to become the most dominant force in the Middle East, has thought about moving away from the dollar. Since the beginning of this century, the European Union (EU) has attempted to find ways to escape the stranglehold of the dollar. In 2021, the EU Parliament passed a resolution to take steps to reduce the dependence on the dollar, and promote the Euro.
Modern Diplomacy, a portal, wrote: “At present, the American currency accounts for more than four-fifths of all exchange transactions worldwide. As a result, if Washington needs to block any financial transactions, all it needs to do is to enter individuals, organisations or countries on the ‘black list,’ which will be sent to all banks across the globe. For fear of losing the possibility of making payments in dollars, an overwhelming majority of companies and financial institutions have to follow instructions from US authorities.”
There was a time, more than a decade ago, when global analysts felt that the Euro could overtake the dollar. The former was stronger than the latter; one had to pay more than a dollar to buy a Euro. But things went back to the old days after the Financial Crisis of 2008, which crippled European nations, and the US. While America rebounded faster, some of the Europeans are still in a limbo. China will never stop its efforts to stop the dollar in its tracks.
One thing is certain. If Trump feels that the RBI is trying to reduce dollar dependence, he may go ballistic. But the GDP of the BRICS nations accounts for 35 per cent of the global figure. G-7 nations account for 28 per cent. In April this year, American economist Jeffery Sachs predicted that the dollar is dying. Even today, it seems like an overstatement. But who can predict the future. Past empires have fallen without visible warnings.
The author has worked for leading media houses, authored two books, and is now Executive Director, C Voter Foundation