Writing for Asia Times on March 26th, David Goldman reports:
Russia and India took a small but important step towards non-dollar trade financing and investment on March 25, when the Reserve Bank of India allowed Russia to invest the proceeds of its arms sales to India in local-currency corporate bonds.
Both countries will benefit, with Russia circumventing sanctions on trade and transactions resulting from its invasion of Ukraine, and India retaining Russian money in its own financial markets. Since India has taken a neutral stance on the war in Ukraine, its markets are free of sanctions and remain open to Russian investors and products.
The Asia Times also reports that the Russia-India trade deal is a first of its kind, operating independently of the dollar. Asian countries have long had a back-up system in place, independent of the dollar, for funding foreign trade. However, to date it has not been used for the financing of regular trade transactions.
According to various estimates, trade between India and Russia amounts to $6.5-7 billion annually. Abandoning the dollar in their mutual transactions will in itself not have any significant impact on the status of the dollar. The most recent estimate of global trade from the World Bank suggests that total global exports amount to $20.5 trillion. The same countries import for a total of $18.4 trillion.
The Russia-India agreement is not the only bilateral trade deal that will operate independently of the dollar. On March 15th, Bloomberg.com reported that negotiations between Saudi Arabia and China would allow the Saudis to accept the Chinese renminbi currency as payment for oil exports.
A broader abandonment of the dollar could set in motion a process with significantly negative repercussions for the U.S. economy.