The US and the US Dollar (USD) dominated the global economy and currency markets after World War II. The US economy’s percentage started to fall, but the USD’s percentage in transactions and its status as a reserve currency remained strong. Exorbitant privilege is a term used by former French minister Valu00e9ry Giscard d’Estaing to describe the USD’s status. This benefit led some European nations to abandon their own currencies in favour of the Euro in 1999.
Source: Seeking Alpha
In 1999, the US dollar made up 71% of the world’s foreign exchange reserves, while the euro made up 17.9%. Up until 2008, the USD’s share decreased while the Euro’s share continuously rose. The US economy had a severe financial crisis in 2008, which spread to international financial markets.
The crisis damaged both the US and the USD’s reputations. The Eurozone had a severe crisis in 2010, just when it was believed that the Euro may eventually replace the USD. The USD increased to 65% throughout the subsequent five to six years while the Euro decreased to 19%. The global financial crisis of 2008 and the euro crisis of 2010 prompted nations to diversify their reserve currencies. The Canadian and Australian Dollars are listed in the IMF’s database of foreign exchange reserves as of 2012. The addition of the Chinese Renminbi as of 2016 is the key component of this diversification plan.
One of the greatest disruptions caused by the Russia-Ukraine conflict is the perception of the US dollar as a reserve currency. Even while USD-based reserves decreased, they continued to dominate global commerce and finance. According to IMF experts, the USD dominated the global commerce and financial markets in 2020. India has experienced both a crisis and an opportunity since the start of the Russia-Ukraine conflict. The problem was that Russian oil was not getting to the market, which caused the price of oil to skyrocket.
Source: TLDR News Global
India had the chance to purchase Russian oil at a discount if it could do so without using US dollars due to sanctions. The Rupee-Ruble payment channel was revived by India as a first step in the payment process. The news is now reporting on payments made in renminbi. since relations between China and Russia strengthen, Moscow can conduct business with Beijing using the Renminbi, while New Delhi feels at ease using both the Ruble and the Renminbi since it helps the country become less dependent on the US dollar.
India has also planned for a second chance in the interim: internationalising the rupee. The INR is promoted for use in foreign transactions by the government and the central bank. A report from the RBI has been made public to support the tactic. In the future, it seems expected that the INR will become a major reserve currency; the only remaining question is when it will join the IMF table.
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