Context: The BRICS New Delhi Declaration indicates only incremental progress towards promoting local currency trade among member countries.
The Declaration acknowledges the work of various task forces and committees but does not provide specific mechanisms or concrete proposals for expanding such trade.
India’s approach reflects a balance between reducing dependence on the U.S. dollar, protecting export interests, managing China-related concerns and avoiding additional trade risks.
Current Status of Local Currency Trade
India’s trade with BRICS partners in local currencies remains limited, with the United Arab Emirates (UAE) and Russia being the main partners currently engaged in such transactions.
The overall volume remains relatively small.
Russia had accumulated substantial rupee balances from its exports to India but faced difficulties in using these rupees because of limited opportunities to purchase Indian goods and services.
Some avenues have emerged for Russia to use these rupees, including increased imports of petroleum products from India following disruptions caused by the Ukraine conflict, although the volumes remain limited.
Another possibility is using a BRICS member’s currency as a settlement currency; for instance, India has used the UAE dirham for payments related to Russian oil.
What is Local Currency Trade?
Local currency trade refers to settling bilateral trade transactions directly in the currencies of the trading countries instead of using a third-party currency such as the U.S. dollar.
It can reduce dependence on dominant international currencies and potentially lower certain currency-conversion and settlement costs.
However, its effectiveness depends on factors such as currency convertibility, exchange-rate stability, availability of trading partners and the ability to use accumulated currency balances.
BRICS Approach: No One-Size-Fits-All Model
The New Delhi Declaration supports promoting local currency trade while respecting national priorities and recognising that there is no one-size-fits-all approach.
This qualification indicates that BRICS members have different economic structures, trade patterns, currency preferences and strategic interests.
For India, local currency trade therefore involves broader considerations beyond simply reducing dollar dependence.
Why India Has Mixed Incentives
India as an Exporter
India generally prefers receiving export payments in U.S. dollars, particularly because a depreciating rupee increases the rupee value of dollar-denominated export earnings.
Retaining this advantage can support the profitability and competitiveness of Indian exporters.
India as an Importer
India is also a major importer and could benefit from settling some imports in relatively cheaper foreign currencies.
This creates a fundamental trade-off: the currency that may be advantageous for India’s imports may not necessarily maximise the benefits from its exports.
China Factor in BRICS Currency Trade
China accounts for roughly two-thirds of BRICS exports, giving the Chinese yuan considerable weight in intra-BRICS trade.
Consequently, greater local currency trade could, in practice, result in substantially greater use of the yuan.
Although India-China relations have shown signs of improvement, India remains cautious about increasing its dependence on the yuan for international trade settlement.
This is particularly relevant because greater currency integration within BRICS could potentially increase China’s financial and economic influence within the grouping.
Local Currency Trade versus BRICS Currency
Local currency trade involves using existing national currencies, such as the rupee, yuan, rouble or dirham, for bilateral or other trade settlements.
A BRICS currency, by contrast, would involve creating or using a common BRICS-wide monetary instrument for international transactions.
India has shown cautious support for expanding local currency trade but has been more resistant to the idea of a common BRICS currency.
A major Indian concern is that China’s economic weight could give it disproportionate influence over such a currency.
U.S. Tariff Considerations
U.S. President Donald Trump has threatened 100% tariffs on countries adopting a BRICS currency.
India has generally followed a pragmatic approach in managing its economic relationship with the U.S. and would therefore be cautious about adopting measures that could trigger additional tariff risks.
This consideration further differentiates India’s position from countries such as Russia and Iran, which have stronger incentives to reduce their dependence on the U.S. dollar because of sanctions and restrictions on their international financial transactions.
Why India’s Position Remains Cautious
Russia and Iran have compelling strategic and financial reasons to seek alternatives to the dollar-based system.
India does not currently face the same degree of pressure to abandon dollar-based trade.
India therefore has to weigh the potential benefits of de-dollarisation and greater financial autonomy against the costs related to export earnings, yuan dependence, exchange-rate risks and possible U.S. trade retaliation.
The cautious language of the New Delhi Declaration reflects these differing national priorities within BRICS.
