Faith Nyasuguta
Following the landmark BRICS expansion, India has ditched the US dollar in what is a historic oil deal with the United Arab Emirates (UAE). In fact, India has purchased 1 million barrels of oil in rupees from the UAE, marking another significant step in the economic alliance’s de-dollarization efforts.
The UAE became a member of the bloc following last week’s 2023 summit. Specifically, it joined Saudi Arabia, Iran, Argentina, Ethiopia, and Egypt as the newest members of the expanded alliance. Now, the historic deal marks a notable trade between the two member states.
The move away from the US dollar has always been a key aspect of the bloc’s growth plan. Subsequently, the presence of an expanded economic alliance provides a key opportunity to make good on those hopes. Moreover, with 90% of oil sales settled in US dollars, it is understandable to expect this sale to begin a trend.
Saudi Arabia, a key trader of oil globally, should present a very important aspect of this equation. Especially considering that the United States had recently urged the country to continue settling in the greenback. Conversely, its inclusion in the BRICS will likely lead to action similar to that of India and the UAE.
TRADE TALKS
Last year, India’s central bank revealed a new framework for settling global trade in rupees — an idea that came into fruition last month, when India is the world’s third biggest oil importer and consumer signed two agreements with the UAE.
First, the two giants agreed to settle trade in their local currencies — in an effort to cut transaction costs and eliminate dollar conversions. They also agreed to set up a real-time payment link to simplify cross-border money transfers.
The agreements will enable “seamless cross-border transactions and payments, and foster greater economic cooperation,” the Reserve Bank of India explained in a recent statement.
DE-DOLLARIZATION TREND
Powerful nations around the world — particularly China and Russia — are keen to dethrone the dollar in response to aggressive U.S. sanctions and foreign policy plays.
Last week, the BRICS bloc agreed to admit six new nations to its ranks. A common desire among multiple bloc members is to level a global economic playing field they feel is over reliant on the U.S. dollar.
This is part of a larger trend — deemed “de-dollarization” — that has gained such sway that some are questioning whether the dollar’s days of dominance are over. But US Treasury Secretary Janet Yellen said no currency currently exists that could displace the greenback.
Yellen’s reassurance follows a 8% decline in the dollar’s share of global reserves in 2022. In an effort to diversify, central banks worldwide have been starting to ditch their dollar reserves in favor of gold.
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