Since the beginning of Russia’s “Special MilitaryOperation” in Ukraine it has received a flood of sanctions such as SWIFT sanction and more from US and its allies. Russia’s oil was capped, NORD pipeline destroyed and use of all means for the crippling of transactions tried out.. In the backdrop of the war BRICS nations have come up with a “New Currency ”.The BRICS organization, is developing a single currency in an effort to do away with the US Dollar and challenge American dominance.The so-called “weaponization” of the dollar has alarmed many governments, not only Russia. In response to Western sanctions, Moscow and Beijing have called for a de-dollarization of the situation.1
Russia has openly stated India and China as being it’s key important global partners with the adoption of new foreign policy putting the trio in the forefront.The declaration was made only a few days after Chinese President Xi Jinping visited Moscow to strengthen the “no limits” alliance that had been proclaimed the previous year.2
The Dollar is facing a threat and the US knows it. The world is revolting against the Dollar dominance and is seeking to overcome this by way and means of diplomatic methods without hurting the American ego.
The grouping of heavyweight economies, namely, Brazil,Russia, India, China, and South Africa are considering the creation of a new currency to encourage trade. The new financial accord might be visible as early as August 2023, when these countries converge in South Africa for their annual summit.According to reports citing Russian politician Alexander Babakov, the BRICS nations are developing a new payment medium based on a policy that “does not defend the Dollar or Euro.”Gold and other commodities such as rare earth elements would secure the new currency.3
The new currency has the potential to diminish the world’s reliance on the US Dollar and the Euro and pave a new path for new global order where USA’s Dollar might just not be needed. India has already taken steps in this regard. Russia, India and China may play an important role in this play as the representatives of 2.5 Bn population. The Indian rupee may gainparamount significance in this regard since the development of Indian digital rupee.4
India’s Vantage point
In 60 cases, RBI approved the opening of Special Rupee Vostro Accounts (SRVAs) of correspondent banks from 18 countries, which are -Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, and the United Kingdom.
RBI permitted invoicing and payment in Indian Rupees for overseas trade. It established the arrangement to encourage global trade growth, with a focus on Indian exports, and to support the growing interest of the world trading community in the Indian rupee. (INR). The RBI has established a framework that is applicable to any partner country intending to conduct commerce with India in INR.5
The RBI’s Central Bank Digital Currency (CBDC) would launch the Indian rupee onto the world stage .CBDC will undoubtedly help the Indian rupee’s internationalisation. Cross-border transactions that are both cost-effective and time-efficient would help the Indian economy integrate into international trade and money flows.Alongside keeping the hegemony of American Dollar at bay.6
The Rupee-Rouble trade agreement is a payment mechanism that permits dues to be settled in rupees rather than dollars or euros. The concept was first conceived in 1953 as part of the Indo-Soviet trade agreement. Ukraine crisis has prompted India, which continues to trade with Russia, to reconsider reintroducing the Rupee-Rouble mechanism, which was last used in 1953. Rupee-Rouble Mechanism is already in its place and if used with the CBDC may produce fruitful result for both state actors to settle debt.7
According to the Department of Commerce, India will import Rs. 64,623 crores from Russia in 2021-22, representing a 59.04% increase over last year. This accounted for 1.58% of India’s total imports.
Furthermore, India’s exports to Russia will be worth Rs 23,658 crores in 2021-22, representing a 20.4% increase over last year. In 2021-22, India’s total trade with Russia will be Rs 88,281 crores, representing a 46.45% increase. India-Russia trade is worth RS 68.98 lakh crores in total, accounting for only 1.28% of India’s trade figures.8
The trade deficit between India and Russia is Rs 12.83 lakh crores, which includes crude oil and defence trade and is this deficit is settled by the means of CBDC or just INR then it’s a bypass of Dollar and its hegemony.
Russia- China front
Following the imposition of harsh sanctions, Russia has become increasingly reliant on China as an import market as well as a supplier of electronics. The allies appeared to be planning to build on what has already been a surge in energy trade over the last year as Europe lessens its reliance on Russia’s primary resource.China is already Russia’s largest trading partner and according to China customs data received by Wind Information, China’s imports from Russia increased by about 49% in yuan terms last year to 763.75 billion yuan ($110.89 billion). This is quicker than the expected 28% increase in 2021.9
As a number of Western countries want to exclude Russia from their economic systems, but Russia’s goal has been to collaborate with partners on local currency settlement.Over 17.9% of Russia’s commercial agreements with China were settled in yuan in 2021, up from 3.1 percent in 2014. With this development Russia and China may emerge with a currency none other Chinese Yuan.10
Brazil and Argentina intend to merge the real and peso into a “Currency union.” If successful, this plan will drive the united currency to second only to the Euro-the world’s largest currency bloc.The proposal aims to reduce Latin America’s reliance on the US dollar and enhance regional trade. Sur (South), a name proposed by Brazil, would be the first prototype of the unified currency, running parallel to the Brazilian Real and the Argentine Peso.11
China and Brazil signed a memorandum of understanding in February to establish RMB-clearing procedures in Brazil, which experts believe is vital infrastructure for the two economies to trade in local currencies.The agreements will make it easier for firms and financial institutions in both nations to use the RMB for cross-border trade, as well as facilitate bilateral trade and investment.
The agreement will allow China and Brazil, two powerful BRICS members, to perform significant trade and financial transactions directly, exchanging RMB for reais and vice versa, rather than using the dollar.The financial restrictions imposed by the US since the beginning of the Ukraine crisis have produced a “crisis of confidence” for the Dollar, promoting global use of other currencies, particularly the RMB.12
South Africa and Africa
South Africa has officially taken over the BRICS presidency from China, and the group’s annual meeting will be held this year in South Africa.The president of South Africa, Cyril Ramaphosa, has stated that he will use his presidency of the BRICS group of top rising economies to advance African interests.Kenya and South Africa have recently signed agreements to deepen their bilateral ties and with South Africa’s Presidency the Kenya’s Dollar crisis may ease up. In order to solve the dollar problem, Kenyan President William Ruto proposed buying oil in shillings. Kenya is experiencing a fuel shortage as a result of the currency issue, which Ruto claimed caused oil cartels to stockpile dollars.13
Moreover, Ramaphosa wants to use this chance to advance the goals of his continent, and they will therefore have an outreach process or moment during the BRICS summit where they will invite other nations from Africa to join them and be a component of the BRICS because they desire BRICS to focus on helping to develop the African continent in whatever BRICS does.14
If the BRICS countries follow through on their proposal and create a new currency, it might help stabilise their economy. It would mean improved customer confidence for a BRICS investment. This would result in increased expenditure and economic growth. This reflects the desire of the BRICS countries to alter the dollar-based economy, which will finally result in the de-dollarization of the entire world.The BRICS countries have expanded their collaboration and want to alter the dollar-dominated financial system. Within BRICS, Russia and China are spearheading de-dollarization efforts to protect their interests deriving from their geopolitical rivalry with the US, as well as to mitigate the possibility of future sanctions against them. India, Brazil, and South Africa have backed BRICS comments on changing the global financial system and expanding chances for the use of local currencies in international trade. All BRICS countries have taken initiatives to de-dollarize their economies and increase their independence in the global financial system.But the process will not happen over night and just might hurt the USA and it might retaliate in ways that are yet unknown but the implications of a new world order are in place and India may come out at top if the geopolitical act of Balancing is played right.
Gautam, Ms. Vanya. “Explained: Why India & Other BRICS Nations Want To Create A New Currency For Trade Payments.” India Times. April 4, 2023. https://www.indiatimes.com/worth/news/india-working-with-other-brics-nations-on-new-currency-598088.html.
Mitra, Anwesha. “BRICS Alliance Working to Create Its Own Currency, Says Russian Official.” mint, April 2, 2023. https://www.livemint.com/news/world/brics-alliance-working-to-create-its-own-currency-says-russian-official-11680445842563.html.
“Ditching the Dollar: Will a New BRICS Currency Replace the US Dollar for Trade?,” April 4, 2023. https://www.firstpost.com/explainers/dumping-the-dollar-brics-currency-us-dollar-trade-india-china-russia-12403612.html.
Rupee trade approvals granted in 60 cases to 18 countries: Finmin – The Hindu BusinessLine. “Rupee Trade Approvals Granted in 60 Cases to 18 Countries: Finmin,” March 14, 2023. https://www.thehindubusinessline.com/economy/rupee-trade-approvals-granted-in-60-cases-to-18-countries-finmin/article66619118.ece.
Kumar, Mr. Harsh. “Will RBI’s CBDC Internationalize Rupee? Here’s What Experts Say.” Outlook. November 4, 2022. https://www.outlookindia.com/business/can-rbi-s-cbdc-take-rupee-globally-here-s-what-experts-say-news-234764.
EXPLAINED: What is Rupee-Rouble mechanism? Why is India considering to revive it? – The Hindu. “EXPLAINED: What Is Rupee-Rouble Mechanism? Why Is India Considering to Revive It?,” April 13, 2022. https://www.thehindu.com/business/Economy/explained-what-is-rupee-rouble-mechanism-why-is-india-considering-to-revive-it/article65313729.ece.
Cheng, Evelyn. “China and Russia Affirm Economic Cooperation for the next Several Years.” CNBC, March 22, 2023. https://www.cnbc.com/2023/03/22/china-and-russia-affirm-multi-year-economic-cooperation.html.
Times, Global. “Yuan to See Increased Use in Bilateral Trade between China and Russia as Dollar, Euro Share Declines, ‘Pushing Internationalization Drive’ – Global Times.” Yuan to see increased use in bilateral trade between China and Russia as dollar, euro share declines, ‘pushing internationalization drive’ – Global Times, December 2, 2022. https://www.globaltimes.cn/page/202212/1280969.shtml#:~:text=As%20a%20number%20of%20Western,percent%2C%20according%20to%20media%20reports.
Khan, Mr. Danish Mand. “Explained: Why Brazil And Argentina Planned A Common Currency.” India Times. February 13, 2023. https://www.indiatimes.com/explainers/news/explained-why-brazil-and-argentina-planned-a-common-currency-591347.html.
China, Brazil to trade in local currencies | english.scio.gov.cn. “China, Brazil to Trade in Local Currencies | English.Scio.Gov.Cn,” n.d. http://english.scio.gov.cn/internationalexchanges/2023-03/31/content_85203377.htm.
Kenya to use shillings for oil purchases amid dollar crisis, fuel shortage. “Kenya to Use Shillings for Oil Purchases amid Dollar Crisis, Fuel Shortage,” n.d. https://www.aa.com.tr/en/africa/kenya-to-use-shillings-for-oil-purchases-amid-dollar-crisis-fuel-shortage/2852938.
Bartlett, Kate. “As BRICS Chair, South Africa Vows to ‘Advance African Interests.’” VOA, January 10, 2023. https://www.voanews.com/a/as-brics-chair-south-africa-vows-to-advance-african-interests-/6912172.html.