BRICS Expansion: Is the Indian Rupee Breaking the Dollar Wall?

As global economic dynamics shift, India emerges as a critical player in the de-dollarisation trend, a movement led by countries seeking alternatives to the U.S. dollar's dominance in international trade.

The growing influence of BRICS (Brazil, Russia, India, China, and South Africa) exemplifies this shift as member nations explore local currency settlements to enhance trade efficiency and reduce dependency on the U.S. dollar.

In this context, the discussions between India and Myanmar to establish a Rupee-Kyat trade settlement mechanism offer a glimpse into the strategic role in promoting local currency trade.

In this latest article, we will discuss the much talked about de-dollarisation trend in the world economy's almanack and where the Rupee stands in this race.

India and Myanmar: Paving the Way for Rupee-Kyat Trade Settlements

In recent developments, India and Myanmar have initiated talks to fully adopt a local currency trade settlement mechanism using the Indian Rupee and Myanmar Kyat. This was discussed during the 8th meeting of the India-Myanmar Joint Trade Committee and further highlighted in discussions between India’s Commerce & Industry Minister, Mr Piyush Goyal and Myanmar’s Minister of Investment & Foreign Economic Relations, Mr ?????? ??????.

The agreement aims to streamline cross-border trade by reducing dependence on the U.S. dollar, cutting transaction costs, and fostering deeper economic ties between the two neighbouring nations.

However, the success of this initiative hinges on addressing several logistical and structural challenges, including trade imbalances, infrastructure deficits, and the need for formalised trade practices.

Strategic Dimensions: Strengthening India’s “Act East” Policy

India's relationship with Myanmar holds significant strategic importance under the broader framework of the "Act East" policy, which aims to enhance India's economic integration with Southeast Asia. By promoting the Rupee-Kyat mechanism, India not only strengthens its trade relations with Myanmar but also underscores its commitment to the regional economic landscape.

This local currency settlement initiative is poised to deepen economic ties with Southeast Asia, potentially positioning India as a key player in the emerging multipolar economic order.

Benefits of Local Currency Settlements: Lower Costs and Faster Transactions

The Rupee-Kyat Trade Mechanism presents clear advantages for both countries. By eliminating the need for currency conversion, it reduces transaction costs and compresses settlement times, making cross-border trade more efficient. Notably, eight Myanmar banks have been authorised by the Reserve Bank of India (RBI) to operate under this mechanism since July 2024. If implemented effectively, this could lead to a surge in bilateral trade between India and Myanmar.

Here are the key implementation challenges that might arise:

• Balanced Trade: For the Rupee-Kyat mechanism to succeed, both countries must ensure balanced trade. An excessive accumulation of one country's currency by the other could create complications in utilising those funds effectively. If Myanmar accumulates more Rupees than it can use, or vice versa, this could lead to friction and destabilise the system.

• Letters of Credit: Since trade between nations may not always align perfectly, especially in volume or type, the need for financial instruments such as letters of credit becomes apparent. This would help bridge the gap between exports and imports and ensure a smoother flow of goods and services.

• Trade Complementarity: For a local currency mechanism to work seamlessly, both nations must trade complementary goods. A lack of complementarity could lead to surpluses and deficits, hampering economic development.

• Financial Stability: Implementing alternative payment systems across multiple trading partners could complicate India’s domestic monetary policy. Issues such as exchange rate management, inflation control, and financial stability could arise, making it imperative for India to maintain flexibility while fostering local currency settlements.

The Broader BRICS Vision: De-dollarisation at a Global Scale

The Rupee-Kyat initiative is a microcosm of the larger shift within BRICS toward de-dollarisation. With growing concerns over the overreliance on the U.S. dollar, BRICS countries are exploring alternatives. BRICS’ New Development Bank (NDB) has floated the idea of introducing a new cross-border payment system backed partially by gold and the currencies of BRICS+ nations.

This shift, while driven by economic considerations, is also deeply geopolitical. The BRICS bloc, representing over 45% of the global population, seeks to reduce the international financial system’s dependence on the West.

Countries like India, China, and Russia are leading efforts to create a more diversified financial ecosystem. India’s active participation in these discussions reflects its long-term vision for greater economic autonomy.

India’s Path to Rupee Internationalisation

India has long sought to promote the Rupee as a viable currency for international trade settlements. However, significant hurdles remain. On the demand side, the global acceptance of the Rupee remains limited. On the supply side, settling trade with nations where India runs a trade deficit (such as Russia) complicates matters further.

Large accumulations of Rupees by these countries raise concerns about the currency's valuation and potential disruptions in trade relations.

Additionally, infrastructure bottlenecks pose a major obstacle. Inadequate connectivity between India and neighbouring countries, including Myanmar, forces trade to rely on expensive and time-consuming sea routes. It could be noted that much of the trade with neighbouring countries remains informal, bypassing customs and regulations, making it difficult to scale formal trade mechanisms like the Rupee-Kyat system.

The Future of the U.S. Dollar: A Shift in Global Power?

As the BRICS bloc continues to promote local currencies for international trade, questions arise about the future of the U.S. dollar’s dominance. For the last 40 years, the U.S. dollar has reigned supreme as the world’s reserve currency.

However, the emergence of alternative systems, like the Rupee-Kyat mechanism or the BRICS cross-border payment system, points to a potential future where the dollar's dominance could be challenged.

While the U.S. dollar remains deeply entrenched due to its wide acceptance, liquidity, and geopolitical backing, cracks in the system are beginning to show. BRICS nations, with their growing economic clout and strategic alliances, are laying the foundation for a multipolar financial system that could eventually rival the dollar-dominated global order.

Conclusion: India at the Forefront of De-dollarisation

India’s initiatives in local currency settlements, particularly the Rupee-Kyat trade mechanism, are part of a broader shift in global financial power.

By promoting the Rupee's internationalisation and participating actively in BRICS’ de-dollarisation efforts, ViTWO sees India positioning itself as a key player in shaping the future of global trade.?

While structural challenges persist—including trade asymmetries and infrastructural gaps—India's strategic pivot toward alternative settlement systems and its engagement with BRICS' de-dollarisation agenda as an increasingly influential architect of future trade frameworks. This transformation of the global financial order appears inevitable; the critical variables are its velocity and India's ultimate position in the reimagined monetary landscape.

The question now is not whether de-dollarisation will happen but how fast it will unfold—and what role India will play in this evolving global landscape.