Recently The U.S.  President  reiterated his intent to impose 100% import tariffs on BRICS nations (Brazil, Russia, India, China, and South Africa) if they moved to reduce the dollar’s role in global trade.

Steps and Reasons Reduce Dollar Dependence

• SWIFT Sanctions: Russia was removed from SWIFT in response to geopolitical tensions, exposing vulnerabilities in the dollar-dominated financial system. Iran was first cut off from SWIFT in 2012, pressuring Tehran into the 2015 nuclear deal.
  • Sanctions reimposed in 2018 under the Trump administration led to renewed exclusion, isolating Iran financially.
• Weaponization of Financial Systems: Ajay Srivastava (Global Trade Research Initiative) highlighted that U.S. actions, like leveraging SWIFT for unilateral sanctions, have driven countries to explore alternatives.
  • Exclusion of Russia and Iran from SWIFT exemplifies the U.S. using financial infrastructure as a tool of influence.
• BRICS Initiatives for De dollarization: Brazilian President Luiz Inacio Lula da Silva proposed creating a new BRICS currency to expand payment options and reduce vulnerabilities.
  • In 2024 at the Kazan Summit Russian President Vladimir Putin criticized the dollar’s weaponization, emphasizing the need for financial multipolarity.

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Steps taken by India for Internationalisation of Rupee

• Payments in INR: In response to sanctions on Russia amid the Ukraine war, the Reserve Bank of India (RBI) allowed invoicing and payments for international trade in Indian rupees to reduce reliance on the U.S. dollar.
• Support for trade in Local currency: The Indian Prime Minister in the Kazan Summit of BRICS highlighted the importance of trade in local currencies and cross-border payment systems to enhance BRICS economic cooperation.
  • Strengthening local currency trade initiatives remains a pragmatic, non-confrontational strategy.
• Mutual Settlement in National Currency: India’s External Affairs minister stressed the significance of mutual settlement of trade in national currencies during the India-Russia Intergovernmental Commission meeting in Mumbai, particularly under current geopolitical circumstances.

India’s Policy Stance on Dollar

• Not Targeting the Dollar: India does not “actively” or with “malicious intent” aim to move away from or target the U.S. dollar in trade policies. The approach is driven by pragmatic needs rather than strategic opposition to the dollar.
  • India’s recent measures, such as permitting Vostro accounts and local currency trade agreements, are aimed at de-risking trade rather than pursuing de-dollarisation.
• Addressing Trade Challenges: U.S. policies often complicate trade with certain countries. India seeks “workarounds” to maintain trade relationships, particularly with partners facing dollar shortages. 
  • Alternative settlement mechanisms are pursued to continue economic engagements without disruption.
• Multipolarity: India emphasizes that diversifying trade mechanisms is not anti-American but aims at multipolarity and financial stability.

Challenge of BRICS Frameworks

• No Decision: While BRICS nations have discussed a shared currency, no decision has been reached.
• Geographical Challenges: Unlike the Eurozone’s proximity, BRICS nations are spread across diverse regions, complicating the feasibility of a single currency.
• Economic Asymmetry: Ajay Sahai (FIEO) warned against frameworks that disproportionately favor China within BRICS due to its larger economic power.
• Differing Priorities: While China may push to use BRICS as a counterbalance to the U.S., India, Brazil, and South Africa prefer diplomatic resolutions to differences with the U.S.

Reasons for India’s Cautious Approach to Dedollarisation

• Rise of the Yuan: The yuan is emerging as a key alternative to the dollar, especially in Russia, where it has become the most traded currency post-Western sanctions. 
  • India has avoided using the yuan for Russian oil imports, wary of China’s increasing economic dominance.
• Balancing Over-Dependence: India remains cautious of over-reliance on the U.S. dollar. Measures include increased gold purchases and repatriating gold reserves held abroad to mitigate risks from geopolitical uncertainties and potential secondary sanctions.

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Conclusion

India’s cautious stance reflects its effort to balance between safeguarding economic sovereignty and maintaining cooperative relations with the U.S. while resisting over-dependence on China or the yuan.