India, one of the BRICS nations, has taken significant strides to accelerate its economic growth by persuading other countries to move away from the U.S. dollar and embrace settlement of cross-border transactions in local currencies. In a momentous development, India signed an agreement with the United Arab Emirates (UAE) to conduct trade using the Indian Rupee, signaling a shift away from the previously dominant U.S. dollar. This move is expected to bolster the Rupee’s standing and reduce foreign exchange transaction costs by eliminating reliance on the U.S. dollar.
Historic India-UAE Agreement
The historic agreement was finalized during Indian Prime Minister Narendra Modi’s recent visit to the UAE, where he engaged in crucial discussions with the Crown Prince of Abu Dhabi, Sheikh Khaled bin Mohamed bin Zayed Al Nahyan. As part of the accord, both nations also pledged to establish a real-time payment link to facilitate cross-border remittances using their respective local currencies. The Reserve Bank of India (RBI) lauded the new real-time payment infrastructure, stating that it would enable seamless cross-border transactions and payments, while fostering deeper economic cooperation between the two nations.
The trade volume between India and the UAE has been robust, reaching a staggering $84.5 billion during the period from April 2022 to March 2023. Until now, transactions between the two countries were settled using the U.S. dollar, but with this landmark agreement, future transactions will be carried out through the Indian Rupee. This shift is expected to bolster India’s local economy and potentially weaken the standing of the U.S. dollar in international trade.
India’s strategic move holds profound implications, particularly given its status as the third-largest importer of oil. By utilizing the Rupee for global trade, India seeks to strengthen its own economy while presenting challenges to the dominance of the U.S. dollar in international transactions. The UAE, as one of the world’s top 10 oil exporters, accepting local currencies in trade further threatens the global status of the U.S. dollar.
A noteworthy example of India’s successful efforts in reducing reliance on the U.S. dollar for oil trade can be seen in its dealings with China. In FY 2022-23, India saved a significant $7 billion by paying for oil in Chinese Yuan. This move was a result of oil being laundered from Russia and sold to China and Saudi Arabia, circumventing U.S. sanctions. Both Saudi Arabia and China played a crucial role in laundering Russian oil to various countries, including India and Europe, with transactions settled in native currencies.
India’s strategic endeavors to embrace local currencies in cross-border trade have the potential to reshape the global financial landscape, with the U.S. dollar facing uncertain prospects in the face of growing economic cooperation between nations. As India continues to find ways to save billions by moving away from the U.S. dollar, the impact on the dollar’s supremacy in international trade remains a matter of close scrutiny.