A new Reuters report says that the Reserve Bank of India has begun asking local banks to no longer use the US dollar in trade with the United Arab Emirates, and instead utilize the Emriati dirham, or Indian Rupee, according to sources familiar with the matter.
According to a treasury official at a private bank, “The RBI has asked banks to encourage clients and corporates to initiate INR-AED trades gradually, instead of using the dollar.”
An RBI official apprised Indian foreign exchange dealers of the new rules during a special seminar this month.
According to the unnamed sources in the report, the decision by the Indian government is a part of a “broader aim of promoting settlement in local currencies with countries with which India has a trade deficit.” The move is also reportedly designed to increase the global reach of the rupee, and limit the outflow of dollars out of the country.
Government data indicates that New Delhi’s trade deficit with the UAE is $21.62 billion, which amounts to 8.2 percent of the country’s entire deficit.
The move by India’s central bank is just the latest instance of the de-dollarization trend which is sweeping across the globe.
Earlier in the month, India and the UAE began settling their bilateral trade in their own local currencies. The move was a result of a previous agreement reached last year, in which the RBI and the Central Bank of the UAE agreed to promote, “the use of local currencies (rupee and dirham) for cross border transactions.”
Last month, the Hindustan Times noted of the trend, that the UAE is the fourth biggest supplier of oil,, and the second largest supplier of natural gas, “which makes de-dollarization particularly significant.”
Pakistan recently utilized yen to pay for its first imports of discounted Russian crude oil, which was a significant change in the South Asian country’s previous policy of paying for exports in US dollars. The shift had become necessary due to Western sanctions imposed on Russia which were designed to exclude the Kremlin from utilizing dollars in cross-border trade settlement, in an effort to prevent it from exporting products and being paid.
Since the imposition of the sanctions, the move by Russia to trade in mechanisms which bypass the dollar has begun to spread, as many countries have followed suit, including Iraq, which actually banned the use of US dollars in both business and personal transactions in May.
