In his interview to this newspaper, Russia’s foreign minister Sergey Lavrov hit upon a very important subject: unilateral US sanctions that use the status of the US dollar as the world’s reserve currency. India and Russia, he said, are working on an intergovernmental agreement on mutual protection of investments. Pacts are unlikely to be of major help in this area, but the other subject the Russian foreign minister brought up, de-dollarisation is the key. Today, the dollar is the principal currency for settling international payments, even when the US is not a counterparty. This must change.
India should work with not just Russia, but with China and the European Union, to create a system of payment settlement that does not use the dollar except when the US is a counterparty. The European Union tried to set up a mechanism to carry on trade with Iran after the US pulled out of the Iran nuclear deal and announced secondary sanctions against any entity that did business with Iran. European companies, it turned out, had greater trust in the ability of the US government to bar them from access to New York’s dollar networks than in the ability of the European Union to protect them from such punitive action. So, that mechanism became a non-starter. The ideal solution would be anew digital currency, whose value is linked to a basket of major currencies, issued and managed by a body like the Bank for International Settlements.
There is even a readymade name for such a currency, the bancor, suggested by John Maynard Keynes, while negotiating the Bretton Woods agreement to set up the International Monetary Fund; his proposal did not fly then, as the Americans preferred to let the dollar serve as the world’s reserve currency. The time has come to create an alternative to the dollar.