Contents
Introduction
As India hosts the 18th BRICS Summit in New Delhi, the proposal to replace the US Dollar ($) with local currencies or a collective basket unit for trade settlement has gained renewed momentum. However, intra-bloc trade imbalances and currency illiquidity risk converting de-dollarisation into an inadvertent catalyst for Yuan-centric financial hegemony (de-dollarisation leading to yuanisation).
How De-Dollarisation Benefits China
- Trade Asymmetries and Bilateral Surpluses: China runs massive structural trade surpluses with almost all BRICS nations, whereas India faces trade deficits with seven members (except Egypt, Ethiopia, and Iran). Settling trade in local currencies forces deficit nations to accumulate non-convertible foreign reserves. Example: Rupee-Rouble Accumulation Glut.
- Depth and Liquidity Safeguards: The Renminbi (RMB) remains the only currency within BRICS backed by deep foreign reserves, safe asset markets, and extensive international swap lines, making it the default intermediate settlement unit. Example: CIPS Settlement Expansion.
- Risk of Asymmetric Dependency: Transitioning away from the US Dollar without fully convertible alternatives risks replacing Western financial leverage with Chinese monetary leverage. Example: RMB Offshoring Pressure.
- Geopolitical Asymmetry: Replacing dependence on one dominant currency with dependence on another would merely relocate financial leverage. NITI Aayog’s 2026 critical-minerals assessment similarly warns that concentrated Chinese supply chains create geopolitical vulnerabilities, reinforcing the broader lesson that diversification not substitution is strategic resilience. Example: Critical minerals.
Western Financial System vs. BRICS Local Currency Model
| Vector | US Dollar-Dominated System | Proposed BRICS Local Currency Framework |
| Liquidity & Depth | Unmatched global market depth and fully convertible capital account. | Fragmented liquidity with capital control restrictions across member nations. |
| Geopolitical Neutrality | Vulnerable to unilateral Western sanctions and SWIFT exclusions. | Free from Western sanction risk, but susceptible to Chinese economic leverage. |
| Trade Balance Impact | Universally accepted reserve asset despite trade deficits. | Risks accumulation of non-negotiable foreign currency balances for deficit countries. |
India’s Strategic-Autonomy Framework
- Prefer Bilateral Local Settlement: Expand INR–AED, INR–RUB and INR–IRR mechanisms where trade economics support them, using vostro accounts and currency-swap arrangements rather than mandating RMB settlement.
- Build Neutral Payment Infrastructure: India should champion interoperable payment rails, UPI-linked systems and CBDC bridges based on open standards, data protection and non-discriminatory access, preventing payment infrastructure from becoming geopolitical leverage.
- Reject Premature Common Currency: A BRICS common currency would require monetary-policy coordination, fiscal discipline, capital-account compatibility and an institution resembling a supranational central bank, currently incompatible with BRICS’ sovereignty-sensitive architecture.
- Promote A Genuinely Plural Reserve Architecture: Rather than replacing dollar dominance with RMB dominance, India should support a multi-currency basket, SDR-like mechanisms and diversified reserve assets, while retaining the dollar where it remains economically efficient.
Way Forward
The Economic Survey 2025-26 advocates moving from “strategic resilience” to “strategic indispensability” amid geopolitical fragmentation. India should therefore:
- Diversify: expand trade in INR and partner currencies without privileging RMB.
- Balance: link local-currency settlement with trade-balancing mechanisms and swap lines.
- Digitalise: establish interoperable CBDC/payment architecture with strong cyber safeguards.
- Deepen Markets: internationalise the rupee through convertible instruments, liquid G-sec markets and predictable regulation.
- Strengthen Exports: use Budget 2026-27’s manufacturing, MSME and export-oriented measures to generate sustained demand for the rupee.
- Preserve Autonomy: keep BRICS cooperation compatible with India’s wider Quad, G20, IMF and WTO engagements.
Conclusion
De-dollarisation must not become a vehicle for monetary dominance by any single power; India’s focus must remain on building transparent, multi-currency settlement systems that safeguard its economic sovereignty toward Viksit Bharat@2047.
