{"id":146019,"date":"2024-12-07T19:35:15","date_gmt":"2024-12-07T14:05:15","guid":{"rendered":"https:\/\/pwonlyias.com\/stage\/?post_type=current-affairs&#038;p=146019"},"modified":"2025-02-13T15:58:41","modified_gmt":"2025-02-13T10:28:41","slug":"indias-stance-on-de-dollarisation","status":"publish","type":"current-affairs","link":"https:\/\/pwonlyias.com\/stage\/current-affairs\/indias-stance-on-de-dollarisation","title":{"rendered":"De-Dollarisation"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Reserve Bank Governor Shaktikanta Das addressed concerns about<\/span><b> &#8220;de-dollarisation&#8221; <\/b><span style=\"font-weight: 400;\">stating that India <\/span><b>has no plans to &#8220;de-dollarise&#8221; its trade.<\/b><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>Key Highlights of the RBI Governor Address<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>India\u2019s Stance on De-dollarisation:<\/b><span style=\"font-weight: 400;\"> The focus is on<\/span><b> derisking trade <\/b><span style=\"font-weight: 400;\">rather than moving away from the US dollar.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Steps like<\/span><b> permitting vostro accounts <\/b><span style=\"font-weight: 400;\">and <\/span><b>agreements for trade settlement in local currencies<\/b><span style=\"font-weight: 400;\"> aim to reduce risks from currency fluctuations.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>BRICS Currency Discussions <\/b><span style=\"font-weight: 400;\">: A common BRICS currency has been discussed but remains at an early stage without significant progress.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">RBI Governor noted that<\/span><b> geographical contiguity, as in the EU,<\/b><span style=\"font-weight: 400;\"> is a factor aiding the success of a single currency, which is <\/span><b>absent in BRICS.<\/b><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Dependence on the US Dollar:<\/b><span style=\"font-weight: 400;\"> While the US dollar remains dominant, reliance on a single currency poses risks due to potential appreciation or depreciation.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/www.pw.live\/batches\/upsc?utm_source=seo+upsc+batch&#038;utm_medium=seo+upsc&#038;utm_campaign=seo&#038;utm_id=upsc\" target=\"_blank\" rel=\"noopener\">Enroll now for UPSC Online Course<\/a><\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>About De-dollarisation<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Definition<\/b><span style=\"font-weight: 400;\">: De-dollarisation refers to efforts by countries to replace the U.S. dollar with other currencies as the<\/span><b> global reserve currency.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Reason<\/b><span style=\"font-weight: 400;\">: Countries aim <\/span><b>to reduce dependence on the dollar <\/b><span style=\"font-weight: 400;\">to mitigate risks related to U.S. economic policies and sanctions, which can significantly impact global trade and financial stability.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Attempts to de-dollarise have gained momentum<\/span><b> post-Russia\u2019s invasion of Ukraine, <\/b><span style=\"font-weight: 400;\">with<\/span><b> sanctions restricting dollar-based transactions <\/b><span style=\"font-weight: 400;\">fueling concerns about the weaponization of the currency.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Dollar Dominance and Its Reasons<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Post-World War Era<\/b><span style=\"font-weight: 400;\">: The U.S. emerged as the dominant economic power, with its GDP constituting nearly 50% of the global economy at one point.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Bretton Woods Agreement (1944)<\/b><span style=\"font-weight: 400;\">: Delegates from 44 nations agreed to adopt the U.S. dollar as the global reserve currency, pegged to gold at the time.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Global Trust<\/b><span style=\"font-weight: 400;\">: The<\/span><b> U.S. dollar\u2019s stability, <\/b><span style=\"font-weight: 400;\">coupled with high trust in American financial markets and governance, makes it a <\/span><b>preferred currency for international trade and investment.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Liquidity<\/b><span style=\"font-weight: 400;\">: The dollar offers easy access to nominally risk-free U.S. Treasury instruments, which are highly sought after by global investors.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Issues Related to Dollar Dominance<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Economic Power Concentration<\/b><span style=\"font-weight: 400;\">: The dominance of the dollar gives the U.S. significant control over global financial transactions, enabling it to impose sanctions and influence global trade.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Trade Deficits<\/b><span style=\"font-weight: 400;\">: Persistent U.S. trade deficits result in excess dollars circulating globally, often reinvested in U.S. assets, creating imbalances.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Challenges for Other Currencies<\/b><span style=\"font-weight: 400;\">: Attempts like India-Russia\u2019s rupee-rouble trade face hurdles due to <\/span><b>trade imbalances,<\/b><span style=\"font-weight: 400;\"> leaving one country with surplus currency<\/span><b> it cannot easily utilize.<\/b><\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+CSE+Books\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Check Out UPSC CSE Books From PW Store<\/span><\/a><\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>Global Trend in De-Dollarisation<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Diversification of Currency Reserves<\/b><span style=\"font-weight: 400;\">: BRICS nations are actively diversifying their foreign exchange reserves to reduce dollar exposure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>BRICS Currency: <\/b><span style=\"font-weight: 400;\">At the recent Brics summit in Russia&#8217;s Kazan, a symbolic banknote displaying the flags of Brics nations was also introduced, sparking conversations about the future of global finance.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">However, Russian President Vladimir Putin clarified that the bloc is not currently considering a unified Brics currency or developing an alternative to the SWIFT payment system<\/span><b>.<\/b><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Central Bank Digital Currencies (CBDCs): <\/b><span style=\"font-weight: 400;\">Many countries are exploring the development of CBDCs as an alternative to fiat currencies, potentially reducing the need for dollar-denominated transactions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Interoperability:<\/b><span style=\"font-weight: 400;\"> Efforts are being made to establish interoperable CBDC systems between different countries, facilitating cross-border payments without relying on the dollar.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Alternative Payment Systems:<\/b><span style=\"font-weight: 400;\"> Countries are developing alternative payment systems to reduce dependence on SWIFT, the global payment messaging system dominated by Western institutions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Domestic Payment Systems:<\/b><span style=\"font-weight: 400;\"> Strengthening domestic payment systems can reduce reliance on foreign currencies for domestic transactions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Gold-Backed Currencies:<\/b><span style=\"font-weight: 400;\"> Some countries are considering returning to a gold standard or using gold as a part of their reserve assets.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">For example, <\/span><b>Russia<\/b><span style=\"font-weight: 400;\"> and <\/span><b>China <\/b><span style=\"font-weight: 400;\">have been <\/span><b>actively increasing their gold reserves<\/b><span style=\"font-weight: 400;\"> in recent years and have even suggested a potential return to a gold standard.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Regional Economic Integration<\/b><span style=\"font-weight: 400;\">: It can foster trade and investment within regions, reducing reliance on the dollar for cross-border transactions.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">India and Russia have already begun settling some trade in their local currencies, exemplifying steps toward reducing dependence on the US dollar.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>India\u2019s Initiatives to Reduce Impact of Dollar Fluctuations<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Local Currency Trade Agreements:<\/b><span style=\"font-weight: 400;\"> India has been increasingly entering into bilateral trade agreements with various countries, allowing for trade settlements in local currencies. This<\/span><b> reduces the need for dollar conversion and exposure to exchange rate risks.<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>India-UAE Currency Swap Agreement: <\/b><span style=\"font-weight: 400;\">This agreement enables direct trade between the two countries in their respective currencies, reducing reliance on the dollar.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>India-Maldives Currency Swap Agreement: <\/b><span style=\"font-weight: 400;\">A similar agreement with the Maldives aims to boost trade and investment between the two nations, minimizing dollar exposure.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Vostro Accounts: <\/b><span style=\"font-weight: 400;\">Vostro accounts allow foreign banks to hold Indian rupees in Indian banks. This facilitates direct trade settlements between Indian and foreign entities,<\/span><b> reducing the need for dollar-denominated transactions.<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Several countries, including<\/span><b> Russia, Singapore, and the UK,<\/b><span style=\"font-weight: 400;\"> have opened vostro accounts in Indian banks to facilitate rupee-denominated trade.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Focus on Deriskin Rather than outright de-dollarization:<\/b><span style=\"font-weight: 400;\"> India is focusing on a more nuanced approach of derisking. This involves<\/span><b> diversifying trade partners, exploring alternative payment systems<\/b><span style=\"font-weight: 400;\">, and <\/span><b>reducing reliance on a single currency.<\/b><\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/www.pw.live\/batches\/upsc\/pw-only-ias?utm_source=seo+upsc+batch&#038;utm_medium=seo+upsc&#038;utm_campaign=seo&#038;utm_id=upsc\" target=\"_blank\" rel=\"noopener\">Enroll now for UPSC Online Classes<\/a><\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>Conclusion<\/b><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The US dollar&#8217;s dominance in the global financial system persists, despite its vulnerabilities, due to the lack of a superior alternative. While the US economy may face challenges, its stability, credibility, and attractive investment opportunities maintain its global appeal. The US dollar&#8217;s dominance could be challenged if a more compelling alternative emerges, offering similar or superior benefits.<\/span><\/p>\n<span class=\"vc_button\"><b>Additional Reading: <\/b><a href=\"https:\/\/pwonlyias.com\/stage\/editorial-analysis\/brics-over-ditching-the-dollar\/\" target=\"_blank\" rel=\"noopener\"><b>BRICS Currency<\/b><\/a><b>,<\/b> <a href=\"https:\/\/pwonlyias.com\/stage\/current-affairs\/de-dollarisation\/\" target=\"_blank\" rel=\"noopener\"><b>De-Dollarisation<\/b><\/a><\/span>\n<div class=\"vc_table_green\"><\/p>\n<table style=\"width: 99.6375%;\">\n<tbody>\n<tr>\n<td style=\"width: 111.19%; text-align: center;\" colspan=\"2\"><span style=\"font-size: 18pt;\"><b>Also Read<\/b><\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 49.797%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/editorial-analysis\/\" target=\"_blank\" rel=\"noopener\"><b>UPSC Daily Editorials<\/b><\/a><\/td>\n<td style=\"width: 61.393%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/daily-current-affairs\/\" target=\"_blank\" rel=\"noopener\"><b>UPSC Daily Current Affairs<\/b><\/a><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 49.797%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/quiz\/\" target=\"_blank\" rel=\"noopener\"><b>Daily Current Affairs Quiz<\/b><\/a><\/td>\n<td style=\"width: 61.393%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/mains-answer-writing\/\" target=\"_blank\" rel=\"noopener\"><b>Daily Main Answer Writing<\/b><\/a><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 49.797%; text-align: center;\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-previous-year-papers?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Previous+Year+Papers\" target=\"_blank\" rel=\"noopener\"><b>Check Out Previous Years Papers From PW Store<\/b><\/a><\/td>\n<td style=\"width: 61.393%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/upsc-test-series-courses\/\" target=\"_blank\" rel=\"noopener\"><b>UPSC Test Series<\/b><\/a><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 49.797%; text-align: center;\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-textbooks?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Textbooks\" target=\"_blank\" rel=\"noopener\"><b>Check Out UPSC NCERT Textbooks From PW Store<\/b><\/a><\/td>\n<td style=\"width: 61.393%; text-align: center;\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-modules?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Modules\" target=\"_blank\" rel=\"noopener\"><b>Check Out UPSC Modules From PW Store<\/b><\/a><b>\u00a0<\/b><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Reserve Bank Governor Shaktikanta Das addressed concerns about &#8220;de-dollarisation&#8221; stating that India has no plans to &#8220;de-dollarise&#8221; its trade.<\/p>\n","protected":false},"author":11,"featured_media":145975,"menu_order":0,"comment_status":"open","ping_status":"open","template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"tags":[],"paper-wise":[2089],"subject":[2100],"acf":[],"_links":{"self":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs\/146019"}],"collection":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs"}],"about":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/types\/current-affairs"}],"author":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/comments?post=146019"}],"version-history":[{"count":2,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs\/146019\/revisions"}],"predecessor-version":[{"id":146021,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs\/146019\/revisions\/146021"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/media\/145975"}],"wp:attachment":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/media?parent=146019"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/tags?post=146019"},{"taxonomy":"paper-wise","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/paper-wise?post=146019"},{"taxonomy":"subject","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/subject?post=146019"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}