The recent Shanghai Cooperation Organization (SCO) Summit 2024 witnessed significant tensions arising from India's rejection of China's proposal to substitute the US dollar with the yuan for trade transactions. This move by India could potentially reshape the landscape of international trade dynamics. The decision taken by India marks a pivotal moment in the interactions among BRICS members, highlighting not only economic concerns but also a deep-seated skepticism of China's global aspirations.
India's Stand Against De-dollarization Proposal
During the SCO Summit 2024, China, backed by Russia, intensified efforts to advocate for de-dollarization by promoting the use of local currencies, especially the yuan, in global trade dealings. Despite these efforts, India staunchly opposed the proposal, affirming its preference to continue utilizing the US dollar as the primary currency for trade exchanges. Indian Prime Minister Narendra Modi's choice to delegate Foreign Minister Subrahmanyam Jaishankar to represent India at the summit underscored the clear discord with China's stance on currency substitution.
Despite potential cost savings associated with using the yuan and ruble for purchasing Russian oil in 2022, India opted to uphold the dollar for future transactions. This decision was influenced by concerns over China's economic motives and the desire to uphold the dollar's supremacy in the international arena. In response to Russia's insistence on yuan settlement for oil purchases, India shifted towards reducing its reliance on Russian oil and turning towards the United States for oil imports, settling payments in dollars.
Implications of India's Defiance on BRICS Dynamics
India's resolute opposition to China's de-dollarization initiative carries significant implications for global economic frameworks. By rejecting the adoption of the yuan for trade, India broadcasts a strong message regarding its commitment to retaining the US dollar as the predominant currency. This stance may influence other BRICS members, potentially causing a rift within the group concerning future monetary policies.
While Russia aligns with China's de-dollarization agenda, indicating a joint ambition to diminish global dollar dependency, India's resistance poses a challenge to these endeavors, complicating the execution of a currency substitution strategy. The repercussion is already apparent in oil transactions, where India diversifies its oil sources by turning to the United States for imports, preferring dollar payments over yuan or rubles. This strategic shift not only bolsters the dollar's status momentarily but also exhibits India's caution towards China's expanding economic clout.
The long-term consequences of this divergence in strategic outlook within BRICS remain uncertain. Should other member states emulate India's stance, the dollar's dominance may solidify, albeit temporarily. Conversely, if China and Russia manage to sway more nations to adopt their stance, the aspiration for de-dollarization could materialize.
