The global world order is undergoing a slow-&-steady tectonic shift. The world is moving from a unipolar world to a multipolar one. This change has been happening since the past decade but, it has picked-up pace with the onset of the COVID19 pandemic. The trigger, however, for this change is the Russia-Ukraine War which started in February 2022. There is huge deliberation across the world as to what could be the reason for such a phenomenon. The real reason is not far to seek- it is economics.

The western countries imposed a flurry of sanctions on the Russian economy. It did lead to some problems for the Russian citizens but, they turned this situation in to their favour. This they did by switching to different currencies to settle their international payments with different countries such as that of India, i.e. the Indian Rupee (INR). The Government of India and the Russian Government entered into an agreement to use the Rupee-Rouble payment mechanism to settle their payment obligations vis-a-vis the goods and services being exchanged between the two nations.

This has worked out in a convenient fashion for the two nations and it is serving as an example for the other countries. Taking a cue from this phenomenon, other countries are considering employing this mechanism. Quite recently, the Government of Sri Lanka and the Russian Government agreed to use the Indian Rupee to settle their bilateral payment obligations. Similarly, other countries are also in-talks with the Government of India to use the Indian Rupee as a replacement for the US dollar to honour their international payment obligations.

The decision to switch to alternate currencies (such as the INR) has its advantages. First, a national economy will have greater flexibility to settle their international trade payments by lowering their dependence on the US dollar. It leads to lowering of the hegemony of the US Dollar in global markets. Consequentially, as the global economy moves towards a decentralized system of international payments, it will lead to a multipolar world order.

Second, excessive dependence on a particular currency for international payments leads to the phenomenon of getting affected from the volatility fluctuations related to the national economy of which the currency happens to belong. For example, the 2008 financial crisis in USA led to a slump in the global economy. Therefore, a decentralised system of international payment is quite desirable.

Third, when countries resort to bilateral or multilateral payment settlement mechanisms, it leads to interdependence among the participating countries. It will ensure that trade and commerce, between participating nations, grows and establishes an atmosphere of mutual trust and harmony. As a corollary, the points of friction between the participants could be resolved through dialogue and not through armed conflict.

As is quite evident, the benefits of switching to alternative currencies (such as the Indian Rupee) are quite substantial. It underlines the growing stature of the “land of the sages” and, it is a projection of the enhanced prestige of the Republic of India. This phenomenon will eventually result into a truly multipolar world order.

Marex Media