India and other non-west countries are on a sprint towards working on alternative channels to free themselves from the dollar legacy. De-dollarisation is the approach which has dominated the discourse and challenged the status quo. Is this an end of the undisputed American economic supremacy?
Latest instance with the Sri Lankan economic debacle, India has set an example of why it is sensible to gradually stray away from the dollar footprint. India’s goodwill and its diplomatic means are coming in handy.
India has been the fastest responder to the economic crisis ridden Sri lanka in 2022 by providing economic assistance and boosting investments. India has already extended a credit line worth of $3.9 billion to help Sri Lanka to sustain itself during the volatile situation. Both the countries are diving deep to examine their bilateral economic relations and broadening their cooperation in an array of dimensions.
Indian Rupee Alternate for economic transactions: Dethroning of the US Dollar on cards
Eight countries have opened Special Rupee Vostro Account (SRVA) to facilitate overseas trade in Indian rupee till now. These countries are: Russia, Malaysia, Singapore, Myanmar, Israel, Germany, Mauritius and Sri Lanka as well. India has been looking to bring countries that are short of dollars into the mechanism. Estimately, 35 nations have expressed interest in better understanding the rupee trade mechanism.
Taking up the recent case study of India and Sri Lanka, both may soon do away with the dollar as the currency of exchange. Sri Lanka’s finance minister Shehan Semasinghe appreciated the economic relationship between the two countries and the financial and humanitarian support bestowed by India over the past year, especially the financing assurances, with respect to the International Monetary Fund (IMF) support programme for Sri Lanka.
India and Sri Lanka are analysing the possibility of using the Indian Rupee for economic transactions and have deliberated upon the initiative that will help in building a stronger partnership through trade and investment-led measures. The High Commission of India organised a discussion on the use of the Indian Rupee (INR) for transactions between India and Sri Lanka.
A team from RBI joined the discussion in virtual format and suggested possibilities of settlement of current account transactions in goods, as well as services, in INR, apart from the option of undertaking permitted capital account transactions.
It emphasised the positive effects largely on the travel and hospitality sector. The benefit of settling in INR was also discussed by the participating banks, including quicker timescales, cheaper exchange rates, and simpler access to trade credits, etc.
Without being exploitative or taking advantage of the situation, India wants to have mutually beneficial bilateral relations with its partners. The participating banks also outlined the benefits of settlements denominated in INR which includes shorter timelines, lower exchange costs and easier availability of trade credits.
Indian foreign policy and diplomacy is giving precedence to these non-conventional means of soft skills and economic potential. It also aligns with the Neighbourhood First Policy. India believes that a safe and secure neighborhood is the foremost step to empower the Global South.
India’s policy for facilitating trade in the rupee is certainly gaining momentum. India’s another neighbor, Bangladesh is also seeking to settle trade in Rupee-Taka. As per reports, Tajikistan, Cuba, Luxembourg and Sudan are in discussions with India about using the mechanism. There is a speculation that Gulf countries like UAE and Saudi Arabia may also trade in rupee soon. India has clearly tapped the potential which was viewed with hesitancy hitherto. Indian Rupee is on the route to go global and reduce the dependency on the US Dollar.
With a hostile power in the neighborhood with its debt-trap diplomacy, a balancing and rising power India is attempting to ensure that its vicinity partners are not at threat and restoring faith in them. With the intense economic competition and changing economic equations, India has found the right trump card to secure its berth in the global economy. De-dollarisation which seemed a far fetched dream is not so far, however, a long and exhausting journey for sure.