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Dedollarization in India: Implications & Approach



  Sep 01, 2023

Dedollarization: India's Approach and Implications


What is Dedollarization?

Dedollarization refers to the move away from using the U.S. dollar in international trade and finance. Countries may opt for dedollarization for various reasons, ranging from economic autonomy to reducing susceptibility to U.S. sanctions.
 

Why Dedollarization?

Sanctions: The U.S. uses economic sanctions as a tool, affecting countries' trade and economy. Reducing dependency on the U.S. dollar can mitigate this.
 
Economic Independence: A lesser reliance on the dollar curtails U.S. influence, allowing countries to chart their economic strategies independently.
 
National Sovereignty: Dominance of the U.S. dollar in global trades offers the U.S. significant sway over other countries' economic decisions. Dedollarization can reclaim some of that sovereignty.
 

India's Stance:

India has been proactive in dedollarization efforts, making moves like:
 
Promotion of the Rupee: India is pushing for more bilateral trades to be rupee-denominated.
 
Alternative Payment Systems: India has explored systems bypassing the U.S. dollar, ensuring smoother trade with partners even under U.S. sanctions.
 
Local Currency Trade: As with the UAE
 

Challenges Ahead:

Dollar Dominance: As the global reserve currency, the U.S. dollar has entrenched acceptance, making moves away from it challenging.
 
Sanction Threat: The U.S. can use sanctions as a tool, discouraging countries from dedollarization.
 
Transition Complexities: Moving away from a system ingrained in global trade isn't easy and requires both policy and infrastructural changes.
 

The Future:

India, with its robust economy and global standing, is poised to pioneer dedollarization. Success here could:
 
Diminish Dollar Power: A significant economy like India moving away from the dollar can influence others to follow suit.
 
Boost Economic Independence: Countries might see the advantage of having greater control over their economic policies without external dependencies.
 
Enhance Global Stability: A diversified global economic structure is less prone to shocks from one dominant currency.
 
In essence, India's dedollarization efforts could reshape global economic dynamics, potentially ushering in a new era of multilateral economic relations.


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