Currently, about 80-90% of trade transactions are in USD and about 60-65% of forex reserves are held by various Nations in USD only. Lately, international trade and settlement started in other currencies such as Euro, British pound, Japanese Yen, Germany Mark, Swiss franc, China RMB etc. This was another master strategy of the USA which provided strength to the US dollar. The oil, being a“new gold” of the modern economy, provided huge strength to the US dollar. Subsequently, the USAcompelled major oil-producing Nations to trade oil in USD. This was indeed a master strategy of the USA for establishing its dominance in the world economy. Hence, the dominance of US dollar prevailed. Finally in August 1971, the Bretton Woods agreementwas collapsed.īy that time, USA had already gained it’s supremacy on the economic and strategic fronts such as defence, space and innovation. After resetting exchange rate of USD with gold, the gold reserves in US banks started depleting. However, inMarch 1968, the gold market was liberalized with a free floating price. In 1961, “gold pool” was formedat London for arresting any large fluctuation in gold price. Thus, the dominance of the USD commenced in 1945. In exchange of US Dollar, the price of gold was fixed at $35 per ounce. By this, US Dollar(USD) was accepted as a “global currency” for international trade and other transactions.
Therefore in 1944,an agreement was entered among western countries, known as, the “Bretton Wood Agreement”. After great depression in 1930s, USA central bank was holding the largest reserve of gold while as, the gold stock with other central banks was depleted which caused a great hurdle in global trade. For this, let us peep in to history of global currency.Įarlier, the currency of one nation was accepted by other nations subject to conversion of “surplus balance” in to equivalent gold. India has such latent potentiality subject to radical reforms.
However, for achieving the status of “global and reserve currency”, India needs a well-designed strategy along with some financial innovation, as done by USA in 1945. By this, day today demand of the US dollar in both nationswill somewhat dilute.
But for friendly countries, like Russia, who are facing sanctions by the USA, bilateral trade in Rupee is a good option. The rupee is not fully convertible and there is no clarity on repatriation. Past legacy of “falling Rupee” might not encourage other countries to accept the Rupee payment. This is a good beginning for converting the Rupee as “global and reserve currency”.But there is long way to succeed ina similar manner as, Euro, British Pound etc. RBI, in its circular dated, has permitted international trade settlement in Indian Rupee and also permitted to invest“surplus balance” in Government securities by trading partner nations.
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