No Plans for De-Dollarization: RBI Governor Das Clarifies India’s Trade Strategy

No Plans for De-Dollarization: RBI Governor Das Clarifies India’s Trade Strategy

Subject: Economy

Section: External Sector

• Clarification on De-Dollarisation
  • RBI Governor Shaktikanta Das confirmed that India has no plans for de-dollarisation, addressing concerns sparked by U.S. President-elect Donald Trump’s threat to impose 100% tariffs on BRICS nations considering a common currency.
  • De-dollarisation is not on India’s agenda. Efforts are solely aimed at de-risking trade, not undermining the dollar’s role in global trade.
• BRICS Currency Proposal
  • A common BRICS currency was an idea proposed by one member of the bloc.
  • No decision has been taken due to challenges such as the geographical dispersion of BRICS countries, which is unlike the Eurozone’s geographic continuity.
• Local Currency Trade Agreements
  • India has entered agreements with some countries for local currency-denominated trade to reduce trade risks.
  • This move is intended to minimize exposure to currency fluctuations and ensure smoother bilateral trade.
• Rationale Against De-Dollarisation
  • Over-dependence on a single currency can be problematic during its appreciation or depreciation.
  • However, India’s goal is trade resilience, not replacing the dollar in global transactions.
• Global Trade Concerns and Potential Tariff Wars
  • Trump’s hypothetical 100% tariffs could lead to retaliatory measures like currency devaluations by China.
  • The broader trade environment would shape India’s response, as multiple global events could unfold in such a scenario.
• Rupee Stability and Forex Reserves
  • India’s forex reserves are robust, ensuring the ability to deal with spillovers from global economic uncertainties.
  • As of now, there is no immediate concern regarding the rupee’s stability.
• Interest Rate Ceiling on Deposits
  • There is no plan to increase the interest rate ceiling on FCNR (B) deposits as a buffer.

What is De-Dollarisation?

De-dollarisation refers to reducing dependence on the US dollar for international trade and as a reserve currency.

Key Aspects of De-Dollarisation:

• Reduced Dollar Usage in Trade:
  • Bilateral/multilateral agreements to settle transactions in local currencies.
• Diversification of Reserves:
  • Central banks include alternative assets like the euro, yuan, yen, or gold in reserves.
• Alternative Payment Systems:
  • Mechanisms like China’s CIPS or regional initiatives by BRICS bypass SWIFT.
• Economic Sovereignty:
  • Aims to reduce dependence on the US financial system, insulating nations from sanctions or dollar volatility.