The US dollar's hegemony in international trade has suffered a serious blow with the De-Dollarization Agreement reached by Russian President Vladimir Putin and Indian Prime Minister Narendra Modi to use national currencies instead of dollars to achieve an ambitious $100 billion bilateral trade objective by 2030.

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A joint statement from the two leaders stressed their resolve to "continue working together to promote a bilateral settlement system using national currencies" as they convened for the 22nd annual summit between India and Russia. This action is a continuation of the Global South's efforts to demonstrate their economic autonomy and wean themselves off of US dollars.

It has long been said that the US dollar's position as the global reserve currency is an "exorbitant privilege" of the US, enabling it to censure other nations financially and borrow money more easily. India and Russia are attempting to erode this privilege, which has been a major source of American economic and geopolitical power, by encouraging trading in national currencies.

The decision to support trade settlements in currencies other than the US dollar directly challenges the dominance of US finance. It occurs at a time when emerging economies are becoming increasingly furious over the dollar's supremacy in international trade and banking, which they perceive as an instrument of US geopolitical control.

De-Dollarization Agreement
Image Source: Observer Research Foundation

"Aiming to further accelerate and sustain the growth in bilateral trade, the Leaders agreed to set the bilateral trade target of $100 billion by 2030," the joint statement said. This ambitious goal demonstrates Russia's and India's resolve to greatly deepen their economic connections outside of the US-dominated financial system.

The Role of the De-Dollarization Agreement

The inaugural India-Russia Investment Forum was also introduced during the summit to strengthen economic ties between the two nations. Both parties decided to "facilitate the participation of Russian businesses in 'Make in India' and 'Atmanirbhar Bharat' (self-reliant India) programs and that of Indian companies in investment projects in Russia."

Furthermore, the leaders deliberated on boosting interconnectivity via programs such as the Chennai-Vladivostok Eastern Maritime Corridor and the International North-South Transport Corridor, highlighting their mutual goal of diminishing dependence on trade routes dominated by the West.

The Modi-Putin summit is a major geopolitical and economic loss for the US, which has pushed other nations to reduce their relationship with Moscow and has attempted to isolate Russia on a global scale through sanctions. The strengthening ties between Russia and India, along with the de-dollarization movement, pose a challenge to US financial dominance globally.

The Modi-Putin deal on trade in national currencies signifies a shift in the global balance of power, with far-reaching implications for the US dollar's continued supremacy, as the Global South looks progressively for alternatives to the US-led international system.

As part of the de-dollarization process, several potential long-term repercussions on the US dollar could have a substantial influence on the dollar's dominance in international trade and finance:

The demand for US dollars will decline as more nations utilize their currencies rather than the US dollar for trade transactions. This might cause the value of the dollar to decline relative to other currencies, decreasing its appeal for cross-border trade.

Debt Management Benefits from the De-Dollarization Agreement

Increased exchange rate volatility could result from the dollar's devaluation. This is because foreign transactions have historically been stable due to the dollar's supremacy.

Countries can now have more control over their monetary policy thanks to de-dollarization. Countries can better set interest rates and control the money supply to meet their unique economic conditions and objectives by lowering their reliance on the dollar.

When their national currency weakens compared to the US dollar, nations that rely significantly on debt denominated in dollars suffer difficulties. De-dollarization can lessen this risk by giving countries more control over debt management, lowering their exposure to dollar-denominated debt, and possibly even lowering their borrowing costs.

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