When the primary designers of Bretton Wood’s system envisaged their idea of a new economic order in 1944, the British economist John Maynard Keynes hoped to establish a powerful global central bank named Clearing Union. British power was waning as several former colonies declared Independence and Britain could no longer hold on to them after the destruction in World War II. However, Harry Dexter White of the US Treasury Department leaned towards greater role for US dollar than Keynes proposal of new reserve currency named bancor. The Bretton Woods Agreement, which pegged the value of gold and other currencies with US dollar, paved way for the new reserve currency. The rise of USA as a technological superpower and resulting growth in economy made US dollar the preeminent currency for global trade for over half a century. In the 21st century, the rise of several emerging economies especially China and India brings a change to the global economic equation. In Purchasing Power Parity(PPP), China has already overtaken USA. USA, China and India are the three big economic powers in PPP terms and the relative decline of USA has prompted a rethink among central banks across the world who still consider US dollar as the reserve currency.
The US has consistently weaponized its financial power through the medium of economic sanctions. The freezing of Russian foreign exchange reserves which prevents them from accessing around half of the $640 billion reserve is a case in point. As the USA-China trade war intensifies in upcoming decades, the countries holding dollar reserves are in for uncertain times. The close interlinks in US-China trade relations makes any conflict a lose-lose deal for not just US & China but also to the rest of the world buying goods from China and paying in currency of the US. The rise of payment mediums like Cryptos and CBDCs creates a new opportunity to move beyond the available reserve currencies. As per a report by State Bank of India, Countries proposing rupee-rouble or yuan-rouble trade to bypass Western economic sanctions on Russia for invading Ukraine are an opportunity for the internationalisation of the Indian currency. Sanctions imposed by the western countries and their partners have cut off Russia from the Swift Payment system and affected Moscow’s trade with other countries. While the western world continues to impose their will on the economic order, countries like India are wary.
The Indian government under Narendra Modi has always been a proponent of decentralization of economic power globally as well as within the country. One of his most important moves as Prime Minister has been to change the devolution formula to increase the state’s share of central taxes to 42%. The setting-up of New Development Bank (NBD) by the BRICS countries was an important move, which challenged the western order. It’s expansion over the years to include countries right from Bangladesh to even smaller economies like UAE, Egypt & Uruguay speaks volumes about the credibility enjoyed by the BRICS nations. The Modi Government’s decision to explore dedicated payment helpline for Sri Lanka which grapples with shrinking of US dollar reserves is one in a series of steps taken by the government to wean away from the sphere of western dominance. The Aatmanirbhar Bharat program undertaken by Narendra Modi is aimed at restructuring the Indian economy with greater focus on domestic manufacturing and domestic consumption. The high prevalence of digital payment mediums like UPI’s will further augment Indian economy into organized economy.
The Russia-Ukraine conflict is an instance where the world saw how technological dominance and reserve currency status could be weaponised by the Western world. The SPFS proposed by Moscow as an alternative to SWIFT is a move, which will reduce the impact of sanctions on India-Russia trade relations particularly with respect to defence procurements. Modi government is yet again unhesitatingly taking care of Indian National interest even though Western world will attempt to pressurize India to give up on the move.
When the Bharatiya Janata Party (BJP) was formed in April 6th 1980 after the collapse of Janata Party government, Atal Bihari Vajpayee in his maiden presidential speech at the first plenary session remarked that greatest crisis of India would be “the moral bankruptcy in politics”. As we celebrate the 42nd foundation day, the BJP under Narendra Modi has successfully weaned the nation away from moral bankruptcy in politics as well as bankruptcy of economic ideas in the world order.
The Author is BJP Spokesperson and Advisor to former Chief Minister of Maharashtra Shri Devendra Fadnavis. She is also the State in-charge of BJP North Indian Cell