| SUMANSPEAKS | ESTD 2006 | CAPITAL MARKETS INTELLIGENCE | JUNE 2025 | MACROECONOMICS & GLOBAL FINANCE |
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SumanSpeaks
Independent Capital Markets Intelligence · Estd 2006
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sumanspeaks.blogspot.com
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The Multipolar Currency Dream Meets Economic Reality
Much has been written about the emergence of a multipolar currency system and the gradual erosion of US dollar dominance. The narrative is undeniably seductive: greater monetary sovereignty, reduced exposure to American sanctions architecture, and a strengthened role for national currencies — the rupee, the renminbi, the dirham — in settling global commerce. For a nation of India's ambitions, the vision is not merely attractive. It is politically galvanising.
Yet the distance between an attractive monetary narrative and a functioning monetary reality is precisely where macroeconomics tends to embarrass geopolitics. This piece does not dismiss the multipolar aspiration. It interrogates it — because the frictions are real, the timelines are long, and the headlines are, as usual, running far ahead of the infrastructure.
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~85%
of global trade invoiced in USD despite US share of world trade being ~10%
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₹?
Rupee: not freely convertible on capital account — the structural ceiling
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18+
nations India has bilateral rupee trade MOUs with — yet dollar routing persists
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~88%
of forex transactions globally involve the USD on at least one side
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1
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Geopolitical Asymmetry: Swapping One Dependency for Another
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A central argument in the de-dollarisation playbook is that settling trade in partner currencies — the renminbi for Chinese goods, the rouble for Russian hydrocarbons — immunises India against dollar volatility and the extraterritorial reach of US sanctions. The logic is superficially compelling. It becomes less so when one asks the next question.
Does replacing dependence on the currency of a geopolitical hegemon with dependence on the currency of a strategic competitor — one with whom India has an active border dispute and a deeply asymmetric trade deficit — constitute genuine monetary sovereignty? Or is it a lateral transfer of vulnerability dressed in the rhetoric of multipolarity?
The dollar's dominance, for all its structural inequities, is underwritten by a legal architecture, deep capital markets, and institutional predictability that neither Beijing nor Moscow can credibly replicate on a decadal horizon. The renminbi remains a managed currency, its exchange rate steered by a single party-state with demonstrated willingness to deploy financial flows as geopolitical instruments. For New Delhi, the strategic calculus of currency bilateralism must weigh trade efficiency against the hazard of financing a competitor's monetary ambitions.
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2
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The Convertibility Trap: Where Rupee Balances Go to Die
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The Indian rupee operates under partial capital account convertibility. This is a deliberate policy choice — the RBI maintains controls on cross-border capital flows to preserve monetary stability and insulate the domestic financial system from the volatility of global hot money. It is a defensible position. It is also the single most consequential structural obstacle to rupee internationalisation.
Consider the mechanics. When Russia supplies India with crude oil and accepts payment in rupees, it accumulates rupee balances. What, precisely, can Moscow do with those balances? It can purchase Indian goods and services — a modest absorption mechanism given the asymmetry of bilateral trade. It can invest in Indian equity or debt markets — subject to FPI limits and regulatory approvals. It cannot freely convert those rupees into euros to pay European suppliers. It cannot deploy them in third-country transactions without navigating Indian exchange control architecture.
This is not a theoretical concern. India's rupee-rouble trade experiment, launched with considerable fanfare following the 2022 Ukraine sanctions, produced exactly this outcome: large, illiquid rupee accumulations in Russian Vostro accounts that neither side could efficiently monetise. The dollar did not lose its role in that trade corridor. It was simply inconvenienced temporarily before quietly reasserting its primacy.
| Mechanism | India pays for Russian oil in rupees deposited in Special Rupee Vostro Accounts (SRVAs) held by Russian banks at Indian correspondents. |
| Outcome | Estimated ₹35,000–40,000 crore accumulated in SRVAs with limited deployment options for Russia. |
| Resolution | UAE dirham and Chinese yuan increasingly intermediated the gap — the dollar simply made a detour. |
| Lesson | Capital account convertibility is not an optional upgrade. It is the precondition for currency internationalisation. |
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3
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The Illiquidity Paradox: Why the Dollar Is Always in the Room
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Liquidity is not merely a financial metric. It is the bedrock of confidence. A currency pair's liquidity determines the bid-ask spread a merchant pays, the depth of the market a central bank can access in stress, and the speed at which a cross-border transaction can be settled without frictional loss. By this measure, the rupee and most emerging market currencies remain in a different league from the dollar entirely.
In practice, a trader settling an INR-BRL (Indian rupee to Brazilian real) transaction will almost universally route it through USD. Not because of political preference, but because the direct cross-currency market is too thin to execute at a fair price. The dollar functions as the universal solvent of global commerce — and its role in this technical infrastructure is largely invisible to the public debate, which fixates on invoicing currencies while ignoring the plumbing through which payments actually flow.
The BIS Triennial Survey consistently confirms that the USD appears on at least one side of approximately 88% of all global forex transactions. This is not a statistic of ideology. It is a statistic of market depth, institutional trust, and 80 years of network effect accumulation. Those network effects do not dissolve in response to political speeches, BRICS declarations, or bilateral MOU signings.
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4
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The Inflation Time Bomb: Immediate Pain, Deferred Gain
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Proponents of rupee trade often invoke the long-run export competitiveness argument: a weaker rupee prices Indian goods more attractively on world markets, accelerates the substitution of imports with domestic manufacturing, and reduces the chronic current account deficit that has made India perpetually vulnerable to dollar tightening cycles. This argument is not wrong. It is, however, dangerously incomplete without its temporal qualifier.
India's import dependency in critical commodities is structural, not cyclical. The country imports approximately 85% of its crude oil requirements. Electronics imports have consistently exceeded $70 billion annually. Industrial machinery, semiconductors, solar panels, and pharmaceutical intermediates remain heavily import-dependent despite years of PLI incentives and Make in India rhetoric. The domestic manufacturing substitution that de-dollarisation theorists promise is an investment story measured in years, possibly a decade or more, of sustained capital deployment and policy consistency.
Currency depreciation, by contrast, is not patient. It prices into import costs within weeks, feeds CPI within months, and compresses household purchasing power in real time. The RBI, caught between supporting the rupee and maintaining growth-supportive monetary conditions, faces a structurally asymmetric constraint — the inflation consequences of a weaker rupee arrive far faster than the export competitiveness benefits it is supposed to enable.
This asymmetry is the political economy of de-dollarisation that rarely makes the conference circuit. It is also why no developing economy has successfully transitioned to a genuinely internationalised currency without first constructing a deep, diversified, and domestically anchored industrial base.
| Prerequisite | India Status | Assessment |
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| Full Capital Account Convertibility | Partial | Deliberate RBI policy; no near-term liberalisation signalled |
| Deep Forex Market Liquidity | Growing | INR-USD liquid; most cross pairs routed via USD still |
| Institutional Trust & Rule of Law | Strong | RBI credibility high; judicial framework solid |
| Deep Domestic Bond Market | Developing | G-Sec index inclusion underway; corporate bond market thin |
| Diversified Industrial Export Base | Limited | Pharma, IT, gems strong; electronics & manufacturing nascent |
| Network Effect (Global Invoicing Use) | Minimal | INR invoicing <1% of global trade; decades from critical mass |
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5
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What a Genuine Multipolar Monetary Order Actually Requires
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The question, then, is not whether a multipolar currency world is theoretically desirable. It clearly is — for reasons of systemic resilience, reduced sanction exposure, and equitable participation in global monetary governance. The question is what the construction materials for such a world actually consist of — and whether India and its BRICS partners are assembling them with sufficient rigour.
A credible reserve currency is not declared. It is earned — through decades of institutional consistency, deep and open capital markets, a legal system that foreign investors trust implicitly, a bond market wide and liquid enough to absorb global savings, and an industrial export base that creates perpetual natural demand for the currency in trade settlement. The euro required sixty years of European institutional architecture before achieving meaningful reserve status. The yen required Japan's postwar export miracle and decades of financial liberalisation. The renminbi, with the full institutional backing of the world's second-largest economy, has still captured less than 3% of global reserves after fifteen years of deliberate internationalisation effort.
These are not arguments for inaction. They are arguments for precision. India's monetary policymakers and trade architects would be better served by a two-track strategy: pursuing rupee trade bilaterally where it genuinely works — with ASEAN partners, in the Gulf, in Africa — while simultaneously investing in the deep structural reforms that would make the rupee a currency the world wants to hold, rather than one it is occasionally asked to accept.
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6
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The Dollar Is Not a Currency. It Is an Operating System.
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The most underappreciated dimension of the de-dollarisation debate is that it conflates the currency with the infrastructure. Replacing the dollar as an invoicing unit is the visible layer — the one that makes for compelling headlines at BRICS summits and G20 communiqués. What lies beneath is an entire ecosystem of financial plumbing that no alternative currency has yet come close to replicating.
Begin with SWIFT. The Society for Worldwide Interbank Financial Telecommunication connects over 11,000 financial institutions across 200 countries. The dollar does not merely transit SWIFT — it defines the settlement conventions, compliance frameworks, and correspondent banking relationships through which SWIFT operates. Russia's partial exclusion from SWIFT following the 2022 invasion demonstrated two things simultaneously: that SWIFT can be weaponised as a sanctions instrument, and that no credible alternative messaging network exists at comparable scale. CIPS — China's Cross-Border Interbank Payment System — processed roughly 100 trillion yuan in 2023, a figure that sounds impressive until measured against SWIFT's dollar volumes. The comparison is illustrative rather than competitive.
Then there is the hedging architecture. The global derivatives market — estimated at over $700 trillion in notional outstanding — is overwhelmingly dollar-denominated. When a Korean shipbuilder invoices in dollars and hedges its foreign exchange exposure, it does so through dollar-denominated swaps and forwards. When an Indian oil refiner purchases crude on the spot market and seeks to manage its price and currency risk, the instruments available in INR are a fraction of those available in USD. A transition away from dollar invoicing without a commensurate transition in hedging instrument availability would leave corporate treasuries exposed to precisely the currency risk they are trying to manage — the operational equivalent of changing the language of a contract while leaving all the courts in the old jurisdiction.
And then, underpinning all of it, is the US Treasury market. With approximately $25 trillion in outstanding securities and daily trading volumes exceeding $700 billion, the US government bond market is the world's risk-free benchmark, the collateral of last resort, and the instrument through which central banks manage their foreign exchange reserves. No alternative sovereign bond market — not German Bunds, not JGBs, not Chinese CGBs — offers the combination of depth, liquidity, and geopolitical safety that the Treasury market provides. Until a credible alternative risk-free asset exists at comparable scale, the dollar's reserve currency role is structurally entrenched regardless of what happens at the invoicing layer.
| Infrastructure Layer | Dollar's Role | Alternative Status |
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| Messaging & Settlement (SWIFT) | Dominant settlement currency across 11,000+ institutions. | CIPS: functional but <5% of SWIFT volume. |
| Forex Hedging Instruments | Overwhelmingly USD-denominated swaps, forwards, options. | INR/non-USD hedging markets: thin and costly. |
| Risk-Free Benchmark Asset | US Treasury: $700B+ daily volume, global collateral standard. | No sovereign equivalent at comparable depth exists. |
| Commodity Pricing Benchmarks | Crude (WTI/Brent), LME metals, CBOT grains — all USD. | Shanghai yuan-crude contracts: niche, capital-controlled. |
| Central Bank Reserve Composition | ~59% of global FX reserves held in USD (IMF COFER, 2024). | EUR: ~20%; CNY: ~2.3%; rest fragmented. |
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The Real Case For
✦ Bilateral rupee trade reduces transaction costs and dollar dependency in select corridors where India has trade surpluses and partners can recycle balances efficiently. ✦ India's JPMorgan EM bond index inclusion and growing FPI appetite for G-Secs lays the early groundwork for external rupee demand. ✦ UPI's global expansion and cross-border payment rails create a payment infrastructure that could eventually support rupee invoicing at scale. |
The Structural Constraints
✦ Capital account inconvertibility creates rupee balance traps that rational trading partners will work around — as Russia already has, via dirhams and yuan. ✦ India's import dependency in energy and electronics means currency depreciation delivers inflation before competitiveness — the asymmetric timeline is a political liability. ✦ Dollar dominance is a network effect, not a policy choice — and network effects yield to alternatives over decades, not electoral cycles. |
The direction of travel toward a more multipolar monetary order is not in dispute. Capital flows are diversifying. The dollar's share of global reserves has declined meaningfully over two decades, from above 70% to under 60%. Bilateral trade arrangements in local currencies are multiplying. These are genuine shifts.
What the optimistic narrative tends to understate — and what this publication exists to examine with forensic precision — is the distance between a declared direction and a completed journey. The dollar's dominance is not a conspiracy. It is the compound interest of eighty years of institutional trust, market depth, legal reliability, and network effect. Eroding it requires not aspirational communiqués but the patient, unglamorous work of building the institutional and market infrastructure that makes an alternative genuinely attractive.
The rupee's moment as a global trade currency will come. The question is whether India's policymakers are investing with the seriousness of purpose that a decades-long project demands — or whether they are mistaking the headline for the outcome.
This article is published by SumanSpeaks (sumanspeaks.blogspot.com) for general informational and educational purposes only. The author has over 25 years of capital markets experience. This is not a recommendation to buy, sell, or hold any security. Currency and macroeconomic commentary involves inherent uncertainty; all projections are analytical perspectives, not forecasts. All data is sourced from public exchange filings, regulatory orders, BIS publications, RBI reports, and credible financial media. Readers must conduct independent due diligence before making any investment or financial decision.
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