According to Reuters, Indian refiners started using China’s yuan to buy Russian oil. The US dollar is increasingly under scrutiny.
Indian Oil Corp became the first of three Indian refiners to buy Russian oil using the yuan, China’s currency, Reuters said. The US dollar is apparently being replaced by other currencies throughout India for oil purchases.
Until one year ago, the US dollar’s global power was virtually unchallenged. Every nation, including US rivals like Russia and China, used the dollar to buy and sell oil.
The dollar has been the global reserve currency for 80 years and is part of the reason why the United States is the world’s most powerful nation. The power of the dollar allows Washington to fuel American domestic and foreign investments without worries of outrageous debt.
Indeed, US sovereign debt amounts to over 20% of the nation’s GDP. Any other country would have declared default much sooner than that.
But US global financial dominance could crumble as soon as the world stops using the dollar. And, a similar scenario would start with oil transactions. Oil is the most traded commodity in the world and the main pillar of the dollar’s power.
After Russia illegally invaded Ukraine in 2022, the United States used its immense monetary power to cut Moscow off the world’s financial system. Not every country, however, abided.
India starts questioning the dollar
India needs Russian oil to fuel its economy, a fact made clear to the United States since the beginning of the Ukraine war. India could not agree to sanctions against Russia, jeopardizing its economy for a conflict on the other side of the planet.
Furthermore, as Russia desperately sought buyers, India could obtain oil at a significantly cheaper price.
Initially, Reuters says, Indian refiners purchased Russian oil from third-party buyers, including the United Arab Emirates. Once again, they used the UAE dirham instead of the US dollar for these transactions.
In June, however, the yuan finally became India’s currency of choice for trading Russian oil. The yuan recently became Russia’s most used currency, replacing the US dollar.
India and China are historic geopolitical enemies. But, as we saw, being enemies does not prevent currency sharing for economic purposes.
China, the world’s second-largest economy and "contender" to the US’s dominance, wants to challenge the power of the dollar. Earlier in 2023, China started talks with Saudi Arabia to make oil transactions in the yuan.
Saudi Arabia, the world’s largest oil exporter, is considering the possibility.
At the moment, the US dollar is still the global reserve currency by a vast margin. However, for the first time in its history, a bloc of nations started questioning its role. How will the dollar respond?
