The United Arab Emirates is in early discussions with India to trade non-oil commodities in Indian rupees, Minister for Foreign Trade Dr Thani Al Zeyoudi said in World Economic Forum, Davos. The minister said other countries, including China, had also raised the issue of settling non-oil trade payments in local currencies. He added that the UAE is hoping to conclude a trade agreement with Cambodia in the first quarter.
Significance of This Move:
The move would build on an agreement signed in 2022, which aimed to increase trade excluding oil between the two countries to $100 billion by 2027. Trading in India’s currency would also signal a stark move away from the US dollar, which dominates global commodities markets as well as trade for countries along the Persian Gulf. Saudi Arabia’s finance minister also this week expressed openness to trade in non-dollar currencies.
India and China Pushing Trade in local Currencies:
India and China are among the largest trade partners of Gulf Arab oil and gas producers, which largely peg their currencies to the dollar. China has also weighed settling non-oil trade in local currencies that exclude the dollar. Despite Gulf trade being largely conducted in dollars, China and India are both leaning harder into making use of local currencies, citing lower transaction costs.
An Alternative Route By Russia and Iran:
Western sanctions in response to Russia’s invasion of Ukraine that froze the Kremlin’s foreign exchange assets also highlighted the risks of relying on the dollar. Russia and Iran are reportedly working together to launch a cryptocurrency backed by gold, with the idea the “stablecoin” could replace the US dollar for payments in international trade.