EXPLAINER
Many countries are now pushing for a new finance phenomenon called ‘de-dollarization’, which can prove to be a major setback for the US and a trade boom for India.
As the rates of the US dollar continue to rise with every passing year, the inflation rates across various countries have skyrocketed. In the midst of this impending recession, many major countries have decided to opt for a financial phenomenon called ‘de-dollarization’.
Financial experts believe de-dollarization can prove to be a beneficial economic trend for India, and can potentially boost the economy and trade between India and other countries. Most recently, the United Arab Emirates (UAE) has decided to trade with India using Rupees, and not the US dollar.
Apart from the UAE, India, and Bangladesh also recently reached a deal where they decided to discard the usage of the US dollar and deal in their own currencies, the Indian rupee and Bangladeshi taka, following a suit popularised by Russia and China.
What is de-dollarization?
According to the basic definition, the de-dollarization refers to countries reducing their reliance on the US dollar, and advancing trade and economic reserves in their own currency or alternate resources, including gold and precious metals.
This practice is being followed by China and Russia, the latter being a strong ally of India. Apart from Bangladesh, countries like Russia, Germany, the UK, Singapore, Sri Lanka, Malaysia, Oman, and New Zealand have already advanced trade with India in the Indian currency.
Apart from promoting their own currency, the World Bank has also revealed that a lot of international governments are now increasing their gold reserves, rather than relying on the US dollar for the growth in their economy and trade.
How can de-dollarization help India?
According to Global Times, the de-dollarization phase in India can greatly help its economy, especially as many countries are currently going through a recession. This is because this practice can help strengthen the value of the Indian rupee in global trade.
As India is expanding its domestic manufacturing sector, trading and dealing in the US dollar can reduce its position in the international market. Further, the tightening monetary policy of the US Federal Reserve has put pressure on India to stop its reliance on US dollar as a currency.
This means that the Indian rupee can be strengthened greatly due to the de-dollarization of the country, and can also avert a possible recession in India.
READ | DNA Explainer: Is US on the brink of recession? What it means for the world
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