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Sunday, June 4, 2023

Trilemma in de-dollarisation 

Recently RBI has permitted banks from 18 countries to open Special Vostro Rupee Accounts (SVRAs) to settle the trade payments with Bharat in rupees. Union Minister of State for Finance Mr. Bhagwat Kishanrao Karad informed the parliament that 30 banks from overseas have signed up with 30 banks in Bharat for opening SVRAs.

The list of 18 countries that will now accept payments in rupees for trade with Bharat are- Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda and the United Kingdom. Out of these 18 countries India has significant trade relationship with Germany, Singapore and United Kingdom. 

Bharat’s Foreign Trade Policy (FTP) 2023 unveiled recently aims to achieve the country’s export target of $ 2 trillion by 2030. In line with that the government is focusing on strengthening the rupee payment system and SVRAs are an initiative in that direction. Bharat is a relatively small player in global exports market. The value of Bharat’s exports represents 1.8% of total world exports of $21.513 trillion for 2021.

SVRA mechanism  

Under the SVRA mechanism foreign banks will maintain rupee account with banks in Bharat. When a Bharateeya importer makes a payment to a foreign exporter in rupees, the amount gets credited to this vostro account of the foreign exporter’s bank maintained with a bank in Bharat. Similarly, when an Bharateeya exporter has to receive payment amount from this vostro account will be deducted and credited to the exporter’s regular bank account.

This will enable our Bharateeya exporters and importers to directly receive and pay in rupees respectively. Trade settlement in INR would reduce dependency on hard currencies including the US dollar, euro, pound sterling and yen. More importantly this will insulate our importers and exporters from exchange risk fluctuations.

Internationalisation of currency

A currency is considered freely convertible when a currency does not have any state restrictions on exchanging it with another currency. Currently there are 17 freely convertible currencies out of which Dollar, Euro, Pound Sterling and Yen are very popular. Rupee is not a freely convertible currency as on date.  

The internationalization of a currency depends on various factors. According to Daniel Cohen (French economist), there are five basic prerequisites, financial development, economic size, military reach, foreign policy ties, and effective governance, which are needed to have success for a country to make its currency as international currency (Cohen 2015). International currencies are normally associated with the countries who have significant exports consistently, deep and developed foreign exchange markets which can be traded at anytime around the clock with stable exchange rates.

Euro currency was launched in 1999 and many experts hoped and predicted it would be an alternative to Dollar as global currency. However, Dollar continues to remain leading global currency till date and Euro had its issues due to few countries in European Union getting into crisis.

Currency composition of official global foreign exchange reserves (COFER)

CurrencyForex reserves (Q4 2022)
Dollar  6,471.28
Euro  2,270.36
Japanese yen     610.85
Pounds sterling     548.68
Chinese renminbi     298.44
Canadian dollars     263.68
Australian dollars     217.52
Swiss francs       25.30
Other currencies     382.85
Total allocated forex reserves11,088.96

Most used currencies in the world for international payments in SWIFT (based on share in total transaction value in January, 2023)

Currency% Share in total transaction value
Pound sterling  4.46
Japanese yen  4.26
Canadian dollar  2.23
Swiss franc  1.57
Australian dollar  1.37
Chinese yuan  1.33
Others  6.04


Former Goldman Sachs chief economist Jim O’Neill, who coined the acronym BRIC (Brazil, Russia, Bharat, China, which subsequently became BRICS with the inclusion of South Africa) sees the dollar’s dominance as a burden to nations with dollar-denominated debt since their monetary policies are destabilized when exchange rate fluctuations occur. 

Ukraine Russia war has triggered de-dollarisation to insulate the global trade in general and oil trade in particular from the impact and influence of US Dollar. While Russia is leading this movement, China and India have lent their support as they are primarily oil importing countries.

“New Delhi, Beijing and Moscow are the nations that now institute a multipolar world that is endorsed by the majority of governments. Its composition should be based on inducting new monetary ties established on a strategy that does not defend the US’s dollar or euro, but rather forms a new currency competent of benefiting our shared objectives.” Says State Duma Deputy Chairman Alexander Babakov (State Duma is the lower house of the Federal Assembly of Russia).

Brazil and China have reportedly struck a deal to do trade in their own currencies. China is Brazil’s largest trading partner accounting for more than a fifth of all imports and more than a third of all exports. Chinese Yuan has become the world’s fifth-largest payment currency and the third-largest currency in trade settlement in the recent past in addition to being the fifth-largest reserve currency.

A similar agreement to use local currencies for trade settlement was reached between Indonesia, Malaysia, Singapore, Philippines, and Thailand in November 2022 that are part of ASEAN countries.


De-dollarisation movement is expected to gather pace in the near future with the introduction of digital currencies by the Central banks in several countries where the individuals and corporates settle their monetary and trade transactions in electronic payments. Central banking digital currencies (CBDC) will also enable cross border trade by settlement through bilateral currencies.

While the above initiatives are at the starting phase, they are likely to gain some momentum in due course subject to geo political factors. Going by the euro experience one can assume that the current de- dollarisation drive may not pose an immediate thereat to the supremacy of US Dollar. Nevertheless, there is a possibility of US Dollar getting a challenge to its unchallenged supremacy hitherto.

The classic challenge of trilemma in international monetary policy (i.e., stable exchange rates, free capital flows, and autonomous domestic monetary policy) leads to several innovative approaches and exploring the options of payment in local currencies and CBDCs is one such approach. Let us wait and see how the things evolve.


  1. https://www.boomlive.in/fact-check/economy/did-nyt-report-saying-30-countries-are-trading-in-indian-rupee-a-factcheck-21469
  2. https://www.kitco.com/news/2023-03-31/Ditch-the-dollar-movement-grows-as-Moscow-calls-for-the-creation-of-a-common-BRICS-currency.html
  3. https://www.imf.org/en/Blogs/Articles/2021/05/05/blog-us-dollar-share-of-global-foreign-exchange-reserves-drops-to-25-year-low
  4. https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4
  5. https://www.statista.com/statistics/1189498/share-of-global-payments-by-currency/

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Dr. B.N.V. Parthasarathi
Dr. B.N.V. Parthasarathi
Ex- Senior Banker, Financial and Management Consultant and Visiting faculty at premier B Schools and Universities. Areas of Specialization & Teaching interests - Banking, Finance, Entrepreneurship, Economics, Global Business & Behavioural Sciences. Qualification- M.Com., M.B.A., A.I.I.B.F., PhD. Experience- 25 years of banking and 16 years of teaching, research and consulting. 200 plus national and international publications on various topics like- banking, global trade, economy, public finance, public policy and spirituality. One book in English “In Search of Eternal Truth”, two books in Telugu and 38 short stories 50 articles and 2 novels published in Telugu. Email id: [email protected]


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