The US dollar dominance is being increasingly questioned by Asian powers, including US-ally India.
India will trade oil with the United Arab Emirates using rupees instead of dollars, Reuters said. Despite being a close US ally, India is also part of the BRICS bloc, whose latest financial efforts have been against US dollar dominance.
India is the world’s third-largest oil importer, with its main sellers being the UAE and Russia. Following the war in Ukraine, Western nations have tried to make India stop oil purchases from Russia, but their pleas have always fallen on deaf ears.
US-India relationships normalized in 2020 when a low-level war was fought on the Chinese border. Wary of China’s expansionism and imperialist ambitions, India decided to align itself with Washington.
But such alignments are purely geostrategic in nature. India is also a member of the BRICS bloc, an economic cooperation agreement that includes China as well.
After centuries of British colonization, India has no intention of following Western imposition any longer, deciding its future path on its own. And this path includes, apparently, de-dollarization.
In June, Reuters reported that oil purchases from Russia were being conducted using China’s yuan instead of the dollar. In 2023, the yuan became Russia’s most-used currency.
Though unofficial, the government made no impositions on India’s oil refiners to switch back to the US dollar. Indeed, de-dollarization has apparently become an institutional prerogative as of July.
What does de-dollarization mean
Since World War II, the US dollar has been the global reserve currency. Most of the world’s trade and investments are settled using the dollar, even between two completely separate countries that do not involve the United States.
There have been many reserve currencies throughout history, but none has been as widespread and powerful as the dollar. Further, no other reserve currency has ever ceased its dominance without a war.
But many countries are questioning whether it’s safe to leave the United States with this immense power. As the world’s global reserve holder, the United States can afford infinite debt. Foreign investors can always bet on the United States, even if their sovereign debt is 20% larger than their economy because the dollar will never fail.
Or will it?
China, the world’s second-largest economy and a contender for global hegemony, begs to differ. Following the Russian invasion of Ukraine, China managed to turn Russia into its own financial and geopolitical vassal. Beijing wants to make Russia the launchpad for the yuan as a global reserve currency.
And if other massive economies like India, which are technically Chinese enemies, approve of their plan, what does the future hold for the US dollar?
Food for thought.
