India is reportedly open to exploring the use of national currencies for trade and financial transactions with BRICS countries, as part of a growing global trend towards de-dollarization.
According to a report from Hindu BusinessLine, India is leaning towards accepting proposals to use national currencies in trade, provided that the decision is non-binding and allows flexibility in choosing trading partners. The key condition for India is the ability to selectively engage with BRICS members, particularly avoiding currency settlements with certain countries, including China.
“New Delhi is assessing how the proposals might benefit it economically and diplomatically without increasing its vulnerabilities, especially concerning China,” an anonymous source told BusinessLine.
The proposals for utilizing local currencies and creating a common BRICS currency are expected to be discussed at the upcoming BRICS summit on October 21-22 in Kazan, Russia. At the previous BRICS summit in Johannesburg in August 2023, Finance Ministers and Central Bank Governors were tasked with exploring local currencies, payment instruments, and platforms before the next summit.
The source indicated that South Africa might soon host a meeting for Finance Ministers and Central Bank officials to further discuss these matters and align their messaging for the upcoming summit.
India had previously expressed reservations about using national currencies for trade with BRICS partners due to its strained relationship with China. However, the prospect of a non-binding decision has softened India’s stance, allowing it to selectively engage with certain countries. “Each country can choose its level of engagement,” the official noted. “India can decide not to use the yuan for transactions with China while engaging with other countries using their respective currencies.”
The proposed agreement would also enable member countries to use accumulated currencies from trade with one country for transactions with another, provided there is mutual agreement on the currency settlement. For example, Russia could convert surplus rupees from its accounts in India into Brazilian pesos or South African rand for payments to Brazil or South Africa, respectively.
The creation of a common BRICS currency will be a key topic at the summit. However, this currency would be notional, reflecting the collective value of the currencies in the basket, with potential dominance by the yuan influencing its value. “The challenge will be determining how to peg the value of this notional currency,” the source said.
In a related development, India’s central bank, the Reserve Bank of India (RBI), has reported that its retail central bank digital currency (CBDC) pilot has surpassed 5 million users. RBI Governor Shaktikanta Das stated at a conference in Bengaluru that while the pilot has been successful, there is no rush to implement a system-wide CBDC. “The introduction of CBDC should be gradual to fully understand its impact on users, monetary policy, the financial system, and the economy,” Das emphasized.
The RBI’s CBDC initiative includes both retail and wholesale versions, with pilots for both launched by the end of 2022. By the end of 2023, the retail CBDC saw a peak of one million transactions in a single day. The RBI is also testing offline payments and programmability features, which could enhance financial inclusion and address infrastructure challenges in parts of India.
Das highlighted the potential of CBDCs to improve cross-border payments efficiency and stressed the importance of interoperability. “The development of a plug-and-play system for international interoperability could benefit the global community,” he said, noting that India is making progress in this area and aims to contribute to international efforts.
As the global financial landscape evolves, India’s potential move towards national currencies in trade with BRICS partners and advancements in CBDC technology reflect a broader shift in the international monetary system.
