The geopolitical shifts and drive for the reformation of global monetary and financial systems are igniting the debate about de-dollarization, which calls for an alternative ‘common currency’ against the currently dominant US dollar in international financial markets. This notion is significant considering different poles of power that are emerging and seeking to have an autonomous monetary policy, shifting away from over-reliance on the US dollar. This debate is central to the agenda of BRICS member states (Brazil, Russia, India, China, and South Africa), now with additional members (Egypt, Ethiopia, Iran, and the UAE). While the concerns over growing ‘unilateral sanctions’ are frequently voiced by Russia and China, Brazil has also joined the club by calling ‘Dollar hegemony ‘ destructive for the interests of the Global South. While debate on de-dollarization dominates the agenda of BRICS member states, India shares a different position in this regard. Can the dream of an alternative financial order less dependent on the dollar be materialized, considering India’s pragmatic approach towards de-dollarization?
The answer to this question lies in the recent statement of Indian foreign minister S. Jaishankar, who clearly stated, ‘ India has never been for de-dollarization, right now, there is no proposal to have a BRICS currency.’ This statement came soon after Trump warned BRICS countries that “they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar, or they will face 100% Tariffs”. Although the US factor is essential in Indian policies with regard to de-dollarization, there are other reasons why India is unlikely to pursue de-dollarization.
The first and foremost reason is the stability of the Indian currency against major currencies, mainly the dollar. India has already experimented with the ‘rupee settlement’ mechanism, where the Reserve Bank of India (RBI) allowed trade settlement between India and other countries in rupees. This step was taken mainly to conduct trade with countries facing Western sanctions, mainly Russia. Although such measures may ease pressure on foreign exchange reserves, growing uncertainty persists over the continued depreciation of the national currency against the dollar. If one looks into the trends of the Indian Rupee against the dollar, the past 5 years’ data shows the rupee has weakened, standing at 73 in June 2020, and now at 85. This will increase the exchange rate risks for countries accepting rupee settlement, resulting in major losses if the value of the rupee falls. Any currency, be it the national or ‘BRICS currency’, should be stable to gain acceptance in the global trade systems.
Secondly, India’s long-term developmental goals—digital, infrastructure, clean energy transition projects, poverty alleviation, and advanced manufacturing are tied mainly to the Western sphere. For all these objectives to materialize, India needs technology, investment, and multilateral financial institutions with a Western orientation, with the prime influence of the US. India is amongst the most dollarized countries, and escaping dollarized systems would have an irrecoverable impact on its growing economy. India views the US as vital for its economic modernization and global political clout. This is one of the prime reasons why India essentially pursues a pragmatic approach within BRICS, especially when it comes to initiatives like de-dollarization. This dual-track foreign policy ensures India does not risk its access to global capital and technology needed for socio-economic transformation.
The third factor is strengthening China’s grip over smaller BRICS countries if an alternative currency prevails. China currently holds the biggest share in the New Development Bank (NDB) within BRICS. India already fears growing Chinese dominance within BRICS, considering the broader geopolitical competition and striving to emerge as a counterbalance to China in the region. Considering the already asymmetric trade relationship between India and China, India would not let China have increased influence in the Global South by influencing the monetary policies of smaller BRICS countries. Considering the recent surge of settlements in the Yuan, India would not want China to dominate the alternative financial systems, if they were to emerge.
The rhetoric of de-dollarization is constantly being pushed under the framework of BRICS, but the problem remains that it’s just rhetoric. The materialization of a currency that would counter the influence of the US dollar dominating the current financial order by establishing an alternative financial order is far from reality. The dollar remains the dominant currency for trade, accounting for around 54% of. The fact that alternative currencies lack the amount of availability, acceptability, and stability, given the psychological bias, makes de-dollarization even difficult. Any alternative currency pushed by any new pole of power would be nothing different from a regime change that would just amend the game’s rules according to their interests.
Amidst all this, India will continue to face this dilemma if it continues to be a part of such arrangements, which are challenging the prevalent US-led norms of the international system. India continues to depend heavily on the West for its developmental objectives. India’s balancing act—between its identity as a leading voice of the Global South and its strategic alignment with Western powers—creates a constant tension in its foreign policy choices. Continued participation in groupings that seek to reorient the global order, without undermining its development trajectory and strategic autonomy, will require India to navigate these dualities with extreme caution and pragmatism.
