Thea Fathanah Arbar, CNBC Indonesia
Tuesday, 11/07/2023 21:40 WIB
Jakarta, CNBC Indonesia – India is the latest country to begin reducing or phasing out the use of the United States (US) dollar or dedollarization. This was revealed in a report by the Reserve Bank of India (RBI) published last week.
“The internationalization of currency is also closely linked to the country’s economic progress, especially its prominence in global trade,” the RBI working group said in the report, as quoted Business InsiderTuesday (11/7/2023).
Although the RBI says the working group’s recommendations do not reflect its official position, they come a year after Prime Minister Narendra Modi’s government first touted greater use of the rupee globally.
In an early July report, the RBI working group pushed for opening rupee-denominated accounts for non-residents in India and abroad. It also recommends integration of India’s payment systems with those in other countries for cross-border transactions.
There has long been known anxiety over the dollar’s too-large dominance in global trade and finance. So that currently the macro geopolitical environment is spurring countries to look for alternative currencies to trade.
In its report, the RBI highlighted the need for the US to maintain its obligations and responsibilities as issuer of reserve currency but, when forced to choose between its own interests and those of the rest of the world, American governments in the past have not hesitated to protect their own interests.
This is a problem because it contributes to an imbalance in the international monetary system, which is already tilting towards the US precisely because the United States is the world’s dominant issuer of reserve currency, according to the report.
“It seems clear, therefore, that while the US dollar’s 50 years of dominance remains unchallenged for now, it is slowly eroding, and the economic order will have to evolve to look beyond the US dollar in the future,” explained the RBI working group.
Despite the global trend to reduce the dollar, the greenback is still the world’s most dominant reserve currency, accounting for nearly 90% of global foreign currency transactions, according to a 2022 survey from the Bank of International Settlements, whose members are central banks.
India, for example, has made little headway with its push to use more rupees for trade. Citing people familiar with the matter, Bloomberg reported only 0.01% of trade in Indian goods was settled in rupees last year.
The US dollar has been the world’s reserve currency since the Second World War, playing an important role in the world’s trading and financial system.
But the sweeping sanctions on Russia that kicked the country out of the US dollar-dominated global financial system have other countries so frightened that they are now creating reserve currencies for trade.
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2023-07-11 14:40:00
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