Currency Dictatorship. The Struggle to End US Dollar Hegemony
India and the BRICS are giving the US dollar the boot? Is it really so?
The
last time a country decided to dump the dollar in the oil business, the
US destroyed it. Now India, the world’s third largest economy, and Iran
have agreed to settle their outstanding oil dues in rupees. What’s
more, the two countries may conduct all future trade in their national
currencies.
This
follows an agreement between Iran and India in mid-2011 in which both
sides decided to settle 45 per cent of India’s oil import bill in rupees
and the remaining 55 per cent in euros. In March 2012 the two countries
inked the Rupee Payment Mechanism that allowed India to buy crude oil
in its national currency. Iran then used the funds to buy products from
Indian manufacturers.
Ironically,
it is the US itself which is responsible for the dollar’s elimination
from India-Iran trade. The Rupee Payment Mechanism was set up to skirt
American economic sanctions on Tehran. Iranian oil forms a significant
portion of India’s energy requirements. Similarly, the Iranians rely
upon India for steel, medicines, food and chemicals.
Replacing the dollar
India
and the US may have come closer in recent years, but that hasn’t
blinded New Delhi to the toxic nature of America’s currency as well as
manipulation by Britain.
The
US is literally writing its own cheque with its unrestrained printing
of the dollar, the bedrock of America’s post-war hegemony. It is the
reserve currency status of the dollar that allows the US to fund its
endless wars and topple governments with impunity.
Across
the Atlantic, the Bank of England is involved in interest rate fixing
of an order of magnitude that makes corruption in developing countries
look puny by comparison.
Such
financial manipulations and currency debasements are negatively and
cyclically impacting the global economy. In fact, it suits the West to
have periodic booms and busts because it keeps the emergent economies in
turmoil. It keeps poor countries poor and the emergent ones stuck in
what’s known as the “middle income trap”.
In hi luminary piece, Geopolitics of Technology, prof. Anis Bajrektarevic very accurately diagnoses:
“the hydrocarbons and its scarcity phychologization, its monetization (and related weaponization) is serving rather a coercive and restrictive status quo than a developmental incentive. That essentially calls not for an engagement but compliance. It finally reads that the fossil fuels’ consumption (along with the policy of currency-choice and prizing it) does not only trigger one CC – Climate Change, but it also perpetuates another global CC – planetary Competition and Confrontation (over finite resources) – to which the MENA calamities are only a tip of an iceberg. Therefore, this highly addictive petrol – USD construct logically permits only a (technological) modernization which is defensive, restrictive and reactive. No wonder that democracy is falling short.”
India’s
central bank has invested a significant proportion of its approximately
$500 billion reserves in dollar denominated assets. Any sharp
depreciation in the value of the dollar entails significant losses to
this massive holding. In this backdrop, the idea of de-dollarisation has
resonated with the country’s leadership in recent times.
In
2010, the Reserve Bank of India proposed floating the rupee as an
alternative global currency. In a study titled ‘Internationalisation of
Currency: The Case of the Indian Rupee and the Chinese Renminbi’, the
bank said the dollar was likely to lose its predominance as the global
reserve currency in the foreseeable future.
“The
Indian rupee is rarely being used for invoicing of international
trade,” the study pointed out. It argued that India needs to proactively
take steps to increase the role of the rupee in the region. Also, the
strength of the growing Indian economy has raised the issue of greater
internationalisation of the Indian rupee.
Group remedy
Indian
negotiators have actively pushed dollar-free trade at the annual
meetings of the BRICS group. This group of five major economies –
Brazil, Russia, India, China and South Africa – is actively engaged in
speeding up the process of increasing mutual trade in national
currencies.
The
$100 billion BRICS New Development Bank (NDB) and a reserve currency
pool worth over another $100 billion are both aimed at weakening the
western chokehold on global financial flows.
According
to India’s K.V. Kamath, the first president of NDB, exchange rate
differences increased the cost of hard-currency loans to emerging and
developing countries by 15-20 per cent. In his view, using local
currencies would eliminate that risk and ease the burden.
The
BRICS have already launched a Contingency Reserve Arrangement to enable
the five member states to swap currencies. Another key advantage of
using national currencies in trade and investment is that businesses do
not have to hedge against two different currencies. Transition to trade
in national currencies will also protect countries from the volatility
of a particular currency.
China’s action plan
Meanwhile,
the Chinese have surprised everyone with the speed with which the
renminbi has acquired global acceptance. In a paper titled ‘The Renminbi
Bloc is Here’, Arvind Subramanian and Martin Kessler of the US-based
Peterson Institute for International Economics provide a dramatic
picture of how the renminbi is growing in strength while the US dollar
weakens.
Firstly,
they say the renminbi is already the dominant reference currency in
India and South Africa. Secondly, since mid-2010 the renminbi has made
dramatic strides as a reference currency compared with the dollar and
euro.
The renminbi has now become the dominant reference currency in East Asia, eclipsing the dollar and the euro….The currencies of South Korea, Indonesia, Malaysia, the Philippines, Taiwan, Singapore, and Thailand now more closely track the RMB than the dollar. The dollar’s dominance as reference currency in East Asia is now limited to Hong Kong (by virtue of the peg), Vietnam and Mongolia.
And they provide this chilling assessment:
“The dollar and the euro still play a greater role beyond their natural spheres of influence than does the renminbi but that is changing in favour of the renminbi.”
Why
chilling? The India-Iran rupee trade, Russia-Iran rouble trade and the
worldwide acceptance of the renminbi will slowly erode the prestige of
the US dollar, which will have dire consequences for American
prosperity.
As
a country that greatly benefits from – and exploits – the dollar’s
reserve currency status, the end of dollar dominance will mean a sharp
decline in American incomes and the ability to project power overseas.
Rakesh Krishan Simha is New Zealand-based journalist and foreign affairs analyst, focussing on issues which the media distorts, misses or ignores. Rakesh
started his career in 1995 with New Delhi-based Business World
magazine, and later worked in a string of positions at other leading
media houses such as India Today, Hindustan Times, Business Standard and
the Financial Express, where he was the news editor.
The original source of this article is Global Research
Copyright © Rakesh Krishan Simha, Global Research, 2016
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