Currency conundrum: on the BRICS New Delhi Declaration

The BRICS New Delhi Declaration shows that progress in enhancing local currency trade has been incremental. The paragraph pertaining to local currency trade acknowledges the efforts of various task forces and committees but falls short of offering any concrete proposals. Recently, the Commerce Ministry indicated that India’s rupee trade with its BRICS partners was limited, with only the UAE and Russia engaged in it. Even those volumes are relatively small. Until recently, Russia had struggled to dispose of the rupees it was accumulating from its exports to India. Some avenues have now opened, with Russia being forced to import petroleum products from India due to Ukraine’s attacks. But that is a trickle. Another option is to treat any BRICS currency as ‘local’. India has already been using the UAE Dirham to pay for Russian oil. However, the latest Declaration’s mention of promoting BRICS local currency trade “while respecting national priorities and acknowledging that there is no one-size-fits-all approach” is telling. Clearly, there are some intra-BRICS issues that need to be addressed. The deliberations are not public, but it would not be surprising if it was India that had emphasised national priorities and raised problems with a “one-size-fits-all” approach. Local currency trade involves several strategic considerations for India.

On the one hand, India would prefer to continue being paid for its exports in dollars. A depreciating rupee ensures that every dollar paid to India results in a higher amount of rupees. As a country looking to boost exports, India would want to retain this advantage. On the other hand, India is also a major importer and would like to pay in relatively cheaper local currencies. It will eventually have to choose. Then there is the fact that China accounts for about two-thirds of all BRICS exports. BRICS local currency trade will largely be trade in the yuan. Relations with China might be thawing now, but India would still be loath to conduct its business in the yuan. It is also important to distinguish between local currency trade and a BRICS currency. While India has so far been cautiously supportive of the former, it has been vocal in opposing a BRICS currency, largely because of China’s likely dominance of such a currency. Then there is U.S. President Donald Trump’s threat of 100% tariffs on countries adopting a BRICS currency. India has displayed a pragmatic approach to dealing with Mr. Trump, and it will not court such tariff threats lightly. Countries such as Iran and Russia have pressing reasons to move away from the dollar. So far, India does not have a convincing enough one, and the New Delhi Declaration reflects that.