De-dollarization Issue
Recently BRICS countries are working towards developing a new currency. According to the information received, BRICS countries are developing new reserve currency.
Due to this, once again the issue of De-dollarization has come into limelight.
The countries included in the BRICS group are Brazil, Russia, India, China and South Africa.
History of dollar dominance
- The US dollar became the world’s official reserve currency in 1944. This decision was taken under the Bretton Woods Agreement.
- Since then the dollar has dominated. As a result, the US has long used economic sanctions as a means to achieve foreign policy goals.
De-Dollarization:
- It involves a mix of macro-economic and micro-economic policies to increase the use of local currency in economic transactions.
- At the same time, it will raise awareness of the exchange-risk costs of dollarization.
Significance of De-Dollarization:
- This will reduce the dependence of other countries on the US dollar.
- This will reduce countries’ vulnerabilities to currency fluctuations and changes in interest rates.
- This will improve economic stability and reduce the risk of financial crisis.
Steps taken by India to promote internationalization of rupee:
- Recently 18 countries including United Kingdom, Germany, Russia and United Arab Emirates have agreed to trade in Indian Rupee.
- Indian and Russian banks have opened special Vostro accounts for trading in rupees.
- India’s new foreign trade policy, announced recently, will provide support to international trade by 2023 by Rs.
Dominance of the US dollar
- About two-thirds of the international debt market is dominated by the dollar.
- Nearly 3/5th of cross-border credit is dominated by the dollar.
- The dollar dominates 63% of international currency reserves.
Source – Business Standard
