India wants to emulate China in internationalizing rupee, but ‘has little success’

India is questioning the status of the U.S. dollar as the world’s reserve currency, arguing that the future international economic order “will have to evolve beyond the U.S. dollar.” The report also highlighted the importance of following the example of the RMB in advancing the internationalization of the rupee. However, Bloomberg pointed out that India has been working hard to promote the internationalization of the rupee for a year, but so far “has had little effect.”

According to reports, the RBI report was released on July 5.

The report states that “currency internationalization is closely related to a country’s economic progress, especially its prominence in global trade,” before citing the transnational experience of RMB internationalization, arguing that China’s export-oriented manufacturing and “bilateral Mechanisms such as “currency swap form” and “bilateral local currency settlement framework” provide the basis and convenience for the internationalization of RMB.

In the report, the RBI encouraged foreign residents in India and abroad to open rupee accounts with banks, while recommending the integration of India’s payment system for cross-border transactions with those of other countries.

Talking about the importance of the rupee’s internationalization, the report noted that the US dollar’s long-term global trade and financial dominance is disturbing.

In the report, the RBI emphasized that the United States should maintain its obligations and responsibilities as a reserve currency issuer. However, when it comes to choosing between its own interests and the interests of the world, the U.S. government has historically “protected its own interests without hesitation.” This reality has contributed to an imbalance in the international monetary system that is skewed too far toward the United States, the report said.

“It is therefore clear that although the 50-year dominance of the US dollar is currently unchallenged, it has begun to slowly erode,” the Reserve Bank of India believes. “In the future, the international economic order will have to evolve beyond the US dollar.”

At present, from the “backyard of the United States” Latin America to the “energy base” Africa, the Middle East, and then to Europe and the Asia-Pacific, more and more countries have begun to plan or have implemented “de-dollarization” programs to strengthen cross-border trade and investment. Local currency settlement. Citing data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) in January, Reuters pointed out that the US dollar’s share of total international payments has fallen to 40%.

Jim Rogers, an internationally renowned investor and former partner of the “Quantum Fund”, previously stated that due to the lack of neutrality of the United States, countries have concerns about the credibility of the United States and are accelerating their departure from the dollar. “The era of the dollar is coming to an end.”

In fact, as early as a year ago, Indian Prime Minister Narendra Modi began to promote the internationalization of the rupee. However, Bloomberg quoted people familiar with the matter as saying on the 7th that a year later, India’s efforts to improve the rupee’s status in cross-border payments have “almost no progress”.

According to Bloomberg, Modi hopes that India will become one of the fastest growing countries in the world, and will position India as a “substitute for China’s manufacturing industry in the post-epidemic era.” However, people familiar with the matter revealed that as of now, India can use the rupee to conduct trade settlements with 18 countries, but the internationalization of the rupee “is still far away.”

Data show that in the past year, India’s local currency trade volume accounted for a negligible proportion of total trade volume, only 0.01% (about 120 million US dollars).

It is worth mentioning that the Ministry of Petroleum and the Ministry of Finance of India have been trying to persuade Russia to accept payment for crude oil transactions in Indian rupees, but Russia is unwilling to hold rupees and hopes to settle in RMB or other currencies. According to a Reuters report on July 3, many refiners in India have begun to use RMB to purchase crude oil imported from Russia.

In this regard, Eswar Prasad (Eswar Prasad), a professor at Cornell University in the United States and the author of the book “The Dollar Trap”, said: “Whether the rupee can become an important international currency in the future is not only related to India’s economic and geopolitical strength. It is also related to the degree of openness of India’s capital account and the quality of financial markets.”

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