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Informist, Monday, Jan. 27, 2025

 

--Govt source: Plan to ask RBI to go slow on rupee internationalisation plan

--Govt source: Trump's threat prompted rethink on rupee internationalisation

--CONTEXT: US Trump threatened 100% tariff on nations trying to replace dlr

 

By Krity Ambey

 

NEW DELHI - US President Donald Trump's threat to impose a 100% tariff on countries that try to replace the US dollar with local currency in global trade seems to have prompted a rethink on rupee internationalisation. The government is likely to ask the Reserve Bank of India to slow down its pursuit of rupee internationalisation, a project that has been high on the central bank's agenda for the last two years, a government official said. 

 

The main purpose of rupee internationalisation was to insulate the Indian economy from market volatility and challenges due to geopolitical instability, but the cons may outweigh the pros if it comes at the cost of trade barriers, the official said. Moreover, de-dollarisation is a long-term plan, while the imposition of tariffs by the Trump administration would have adverse implications in the near term, according to the official.

 

Trump's comment was in the context of the BRICS group of nations endorsing settlement of cross-border payments in local currency at the BRICS Summit in October. BRICS is an intergovernmental organisation comprising Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the United Arab Emirates. The bloc aims to promote unified emerging economic perspectives in multilateral forums.

 

Independently, India had initiated the rupee internationalisation agenda in 2022 to smoothen trade with Russia after the US and other European countries imposed sanctions on Moscow in the aftermath of its invasion of Ukraine. The RBI had allowed Russian traders to open special vostro accounts with Indian banks, and vice versa for Indian traders, to settle transactions in their local currency. After this, RBI signed memoranda of understanding with the central banks of several other nations, including the United Arab Emirates, Indonesia, and Myanmar, to facilitate settlement in local currency.

 

However, after Trump's comment, India's stance on rupee internationalisation and de-dollarisation has undergone a shift. Last month, former RBI governor Shaktikanta Das, when he still held his office at the central bank, had mentioned that India has not yet taken any significant step towards de-dollarisation. 

 

Emerging market currencies, including the Indian rupee, have taken a beating since November, when the dollar supremacist Trump's Republican Party emerged victorious in the US election. Trump's protectionist stance on the US' domestic manufacturing has led to significant flight of capital towards the world's largest economy. The Indian currency has experienced notable volatility with 2.8?preciation against the dollar since early November.

 

Besides opposing de-dollarisation, Trump has also warned he would impose tariffs on all countries that have a trade surplus with the US. Given that India had a trade surplus of $35.32 billion with the US in 2023-24 (Apr-Mar), government officials have been hoping to convince the US for a mutually beneficial trade deal to avoid the tariff actions, Informist had reported earlier this month. Indian government officials have internally been preparing a proposal covering select sectors, which they will put forth to the US. 

 

The government official quoted above said that as long as the foremost focus of Trump's tariffs is on China, India would deploy a wait-and-watch approach.  End   

 

US$1 = INR 86.44

 

Edited by Vandana Hingorani

 

 

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