BRICS: India’s Stance on the Proposal for National Currencies and a Common Currency

BRICS: India’s Stance on the Proposal for National Currencies and a Common Currency

Sub: IR

Sec: Int groupings

• Context of the Proposal:
  • The BRICS nations (Brazil, Russia, India, China, and South Africa) are considering a proposal to use national currencies for trade and financial transactions within the bloc.
  • This initiative is part of a broader attempt to ‘de-dollarise’ the economies of the member countries.
• India’s Conditional Consideration:
• Non-Binding Agreement:
• India may consider the proposal favourably if the decision remains non-binding, allowing the country to opt-in at its discretion.
• Selective Currency Settlement:
• India seeks the freedom to choose which BRICS members it will engage in currency settlements with, potentially excluding China due to strategic concerns.
• Upcoming BRICS Summit:
  • The next BRICS summit is scheduled for October 21-22 in Kazan, Russia.
  • The agenda is likely to prominently feature discussions on the use of local currencies and the creation of a common BRICS currency.
• Economic and Diplomatic Considerations:
• India’s Examination of the Proposal:
• New Delhi is carefully assessing the economic and diplomatic benefits of the proposal while being cautious about potential vulnerabilities, particularly in relation to China.
• Concerns Over Currency Dominance:
  • A significant issue is the potential dominance of the Chinese Yuan in a common BRICS currency, as it might have a greater weightage due to its economic size.
  • India is evaluating whether this dominance would be acceptable or if it might compromise India’s economic interests.
• Challenges with a Common Currency:
  • The proposed BRICS currency is expected to be notional, with its value pegged to a basket of the member countries’ currencies.
  • Determining the value of such a currency is complex, especially if one currency (such as the Yuan) appears to dominate the basket.

De-dollarisation:

De-dollarisation is the process of reducing the US dollar’s dominance in global markets. It involves substituting the US dollar with other currencies for trading commodities, managing forex reserves, engaging in bilateral trade agreements, and investing in dollar-denominated assets.

Key Reasons for De-dollarisation:

• Mitigating Geopolitical Risks: Countries aim to protect their economies from the geopolitical influence exerted by the US through its control over the global economy.
• Economic Sovereignty: Reducing reliance on the US dollar helps nations enhance their economic independence and resilience.
• Diversification: Central banks are diversifying their reserves to include other currencies, minimizing risks associated with the US dollar.

In essence, de-dollarisation is driven by the desire to reduce the US’s disproportionate influence on global markets and safeguard national economic interests.