Split Personality

Kashmir and the G20, de-dollarization and local currency trading, Is India coming of age? Biden keeps Yemen war alive

May 24, 2023

UPDATE: China's resolute boycott of the G20 tourism conference in occupied-Kashmir from May 22-24 is a powerful demonstration of its unwavering commitment to it’s principled foreign policy.

Trading with local currencies is now a common practice in the world economy. Local Currency Trade (LCT) has gained so much traction that bilateral LCT agreements between countries are now widespread.

G20 summit, China, held-Kashmir

By Yasir Habib Khan

After China’s refrainment and many others, G20 tourism conference in occupied Kashmir has lost its global writ as well as worth. India tried to play big but hideous gambit has been backfired. China's resolute boycott of the G20 tourism conference in occupied-Kashmir from May 22-24 is a powerful demonstration of its unwavering commitment to it’s principled foreign policy.

Beijing’s opposition to conducting G20 meetings in disputed territories exemplifies its unflinching dedication to non-interference and respect for national sovereignty. It conveys a clear message that it will not support efforts to undermine the territorial integrity of nations. This position is consistent with China's foreign policy of defending its own sovereignty while respecting the sovereignty of others.

At a news briefing in Beijing, Chinese foreign ministry spokesperson Wang Wenbin said China will not attend a G20 tourism meeting next week in disputed Jammu and Kashmir. “China is firmly opposed to holding any kind of G20 meetings in disputed territory and will not attend,” Chinese Foreign Ministry spokesperson Wang Wenbin stated.

The Chinese move was in response to India's illegal annexation of IIOJK, a Muslim-majority state, to create Jammu and Kashmir and Ladakh on August 5, 2019.

Since a 2020 military skirmish in Ladakh killed 24 soldiers, New Delhi-Beijing relations have deteriorated. Srinagar, IIOJK's summer capital, will host the G20 tourism working group on May 22-24. Pakistan has already opposed India's G20 meeting in occupied Kashmir.

China prioritizes regional stability and avoids entanglements in complex disputes by maintaining neutrality in the Kashmir conflict. This principled approach not only guarantees the welfare of China's own people, but also positions China as a responsible global power that upholds international norms and promotes peaceful territorial disputes resolutions.

China's decision to held back from the G20 summit in Kashmir stems from its unwavering dedication to safeguarding its national defense interests. Given Kashmir's proximity to China's western border and its strategic location, China must maintain a vigilant posture. China demonstrates its resolve to protect its security and preserve regional stability by vigorously opposing events in disputed territories. This resolute defense policy reinforces China's position as a staunch defender of its national interests and deters potential threats.

China's support for Pakistan's condemnation of India's actions in held-Kashmir is indicative of the strong and enduring affinity between the two countries. This enduring friendship is based on shared values, historical connections, and common interests. The China-Pakistan Economic Corridor (CPEC) and the Belt and Road Initiative (BRI) are two prominent examples of how China's strategic partnership with Pakistan has been consistently strengthened through various initiatives.

China's support for Pakistan's position on held-Kashmir reflects its understanding of the region's intricate dynamics. China not only manifests solidarity by supporting Pakistan's condemnation of India's actions, but also protects its own strategic interests. Due to its contested status and its potential impact on regional stability, Kashmir is of tremendous geopolitical importance. China's support for Pakistan balances the influence of other key regional powers in the region.

China has a strong desire to protect its national interests and sovereignty, which is evident in its assertive power projection on the international scene. China has vehemently refuted claims of economic coercion in reaction to the antagonistic agenda during the recently held G7 summit in Japan as China pushed for an open and inclusive strategy. China has exposed the G7's widespread hypocrisy and double standards, exposing the errors in their rhetoric against China. The G7's internal conflicts lessen its power and restrict their capacity to coalesce in opposition to China.

China refuses to be intimidated or bullied into relinquishing its sovereignty, remaining steadfast in the face of global demands. China seeks to progress its development, safeguard its national interests, and contribute to world peace and prosperity through strategic diplomacy. It resists attempts to malign China and emphasizes that the world faces more risks from a small number of nations that unfairly identify China rather than from that country itself. China seeks to protect its sovereignty, advance its national development objectives, and benefit the international community by adhering to a steady and strategic course.

The forthcoming G20 Tourism Working Group meeting in Srinagar, scheduled for May 22-24, is the first event to be held occupied Kashmir after its special status was repealed in 2019, causing its split into two union territories.

Around 60 delegates from G20 countries are expected to attend the meeting in Srinagar. Earlier, it was anticipated that over 100 representatives would take part in the conference. Turkey reportedly avoided the meeting, and Saudi Arabia has not enlisted for the event.

Other member nations of the group like Russia, France, Germany, Italy, the US, the UK, Japan, South Korea and the European Union among others have signed up for the three-day event.

India, which holds the chair of G20 this year, has organised a series of meetings across the country in the run-up to the summit in New Delhi in September.

Why Countries are Accelerating ‘De-Dollarization’?

Local Currency Trade (LCT) has gained so much traction that bilateral LCT agreements between countries are now widespread. Particularly in the wake of the pandemic and the crisis in Ukraine, several middle and small nations are now participating in LCT.

Russia and Bangladesh recently announced intentions to repay payments in Yuan in order to get over challenges imposed by US sanctions against Russia. Prior to that, Bangladesh and India had inked an LCT agreement to conduct rupee-based trade. LCT is now preferred in many Eastern nations, not just Bangladesh, India, and Russia. Additionally, there are proposals about creating a new currency to replace dollar trading. In regard to this, it is important to look into the underlying reasons for the de-dollarization. And why the majority of countries in the global south wish to abandon the dollar—the dominant international currency.

De-Dollarization

The term “de-dollarization” refers to the process of shifting away from the use of the dollar in international trade. In order to lower risk and vulnerability in transactions, the dollar has traditionally been used for international trade. In addition, it is a result of US supremacy in terms of soft power and the world economy. De-dollarization is a strategy once used by nations to challenge the US. However, in the Post-Covid period, fluctuating foreign exchange reserves (forex) and the global dollar crisis are some of the main causes driving the current de-dollarization process. Geopolitical rivalry and dwindling confidence in the dollar, however, are also contributing factors at the moment to this process.

De-Dollarization Efforts

Local Currency Trade, or LCT, is a popular de-dollarization approach. LCT refers to cross-border local currency trade. Here, currencies are converted directly based on their exchange rates. The rupee-based trade agreement between Bangladesh and India is an example of LCT.

Aside from LCT, trade-in third currency is currently another aspect of the de-dollarization process. One instance is the repayment between Bangladesh and Russia in the Chinese Yuan. Bangladesh and Russia have decided to use Yuan to settle loans in order to evade US sanctions on Russia’s usage of the global gateway- Swift.

60 countries today are engaged in trading in their respective currencies. It is also being practiced by several of the US’s longtime allies in the global south, like India. India presently has LCT agreements with 19 countries. Saudi Arabia has begun to accept Yuan in the trade of oil. Other Gulf States are thinking aboutallowing yuan in the oil trade as well. Previously, oil was only sold by Gulf nations in US dollars. However, it appears that they are now thinking about taking additional currencies. Brazil and China have lately announced plans to trade in Yuan.

The idea of creating a new currency is another noteworthy initiative in the ongoing de-dollarization process. To facilitate trade among its members, BRICS has been working to launch new currency. BRICS presently accounts for 41% of the global population and 31.5% of the global GDP. To decrease its reliance on the dollar, Indonesia is adopting the BRICS model.

Additionally, a new single currency known as the “sur” has been preliminarily adopted in Latin America. Brazil and Argentina, two Latin American giants, want to begin using the currency in their bilateral trade to reduce their dependency on the dollar.

Why Countries are Moving Away from Dollar?

The existing process didn’t happen over the course of a day or a year. Instead, it was a long-term process that lasted the past 20 years. The percentage of global reserves held in dollars is gradually decreasing. According to Bloomberg, the percentage of dollars held in foreign exchange reserves has decreased from 73% in 2001 to 58% by 2023. According to further breakdown, the representation has decreased by 11% since 2016. And of this, 11%, 8% took place only in one year- 2022.

While the dollar’s portion in global reserves is declining, the Yuan’s stake is gradually increasing and presently ranks fifth in the world with a share of 3%. Yuan has overtaken the Euro as Brazil’s second-largest foreign currency in its forex reserve, which is one of the main drivers behind their LCT deal. China’s portion of the global FX reserve is growing along with its international commerce and investment. Additionally, a lot of nations are beginning to believe in the Yuan as a reliable and trustworthy currency. As a result, many countries are picking the Yuan over the dollar because using the Yuan in international trade also helps the nation keep a balance in its foreign exchange reserves.

In addition, the US has been leveraging its financial system to subjugate its geopolitical adversaries, particularly in the conflicts with China and Russia. This ‘weaponization’ of the currency is eroding international trust. The geopolitical usage of the dollar, which is seen as a universal good, is making the Chinese and Russians nervous. Russia is already prohibited from using Swift, making it difficult for it to conduct business with other countries.

The US administration’s unilateral actions and choices regarding the dollar further exacerbate the current dollar crisis on the global market. The US increased its interest rate eight times in the past year, which led to high exchange rates that affect people who use the dollar around the world. Political Scientist Fareed Zakaria also believes that the US itself is responsible for such a decline in dollar use because of its geopolitical use and weaponization.

However, in addition to geopolitical and trust issues, the de-dollarization process is also driven by high exchange rates and decreasing foreign exchange reserves in developing nations. Economy are already struggling in the post-Covid era and in the context of the crisis in Ukraine. They are turning to LCT to preserve their hard-earned dollars in order to prevent future distress. Additionally, these nations have grown to depend on both Russia and China in a complex manner. Therefore, they cannot simply disregard their commercial relations with these US competitors. They are using either LCT or yuan to keep these trade links going. For instance, Bangladesh pursues a foreign policy that is neutral and balanced toward the major nations. It must pay for a $12 billion nuclear project it has with Russia. So, Bangladesh and Russia are resorting to yuan to avoid sanctions-related complications. Same goes for Brazil, as it intends to utilize its reserve of yuan.

Even though the dollar’s share in global forex is declining, the ideas of launching new currencies are coming forward, trade in yuan is gradually increasing, and LCT are also increasing, Dollar still remains the single largest share holder in the market with 58%, with no eminent competitor. It’s closest competitor, Euro only has 20% share. Therefore, the current process can be termed as an ‘inception’. It is still to early to tell whether the process would end Bretton Wood system or not. Yet, there is no denying that Zakaria believes also, the US itself is to blame for the de-dollarization as it is failing to maintain trust, and has weaponized a public good.

The Dawn of India’s Age

By Michael Debabrata Patra, Deputy Governor, Reserve Bank of India (RBI)

Excerpts:

India is poised on the crest of a tide in its history that will take it to its full potential in securing its aspirational goals for the future of its citizens and in its role in global affairs, albeit amidst several challenges. It is in that context and spirit that I thought I will spend some time envisioning the dawn of India’s age.

Demographics

According to the United Nations3, India has become the most populous country in the world this year, attesting to the flowering of the demographic dividend that set in from 2018. Every sixth working age (15-64 years) person in the world is an Indian. The potential for boosting saving and investment that this entails considerably enhances India’s emergence as the world’s economic powerhouse of the future. In fact, this momentous development has been termed as ‘shifting the world’s centre of gravity’ because it could be heralding a tectonic change in India’s role in the global order. Moreover, India’s population is expected to keep growing for the next four decades, peaking at under 1.7 billion in 2063. More than a sixth of the increase of the world’s working age population between now and 2050 will be provided by India.

We must prepare for donning this responsibility. In some ways we have begun. India is upgrading physical infrastructure - roads and airports being the most visible dimensions – to world class levels. We are on the cusp of a digital payments revolution. Yet, our most formidable challenges remain: only half of the existing working age population is part of the labour force. Furthermore, India’s female labour force participation is among the lowest in the world, even lower than that of low income countries. Also, India’s labour productivity (GDP per hours worked) is lower than even peers in the lower middle income group of countries into which we are classified. Consequently, 16 per cent of the population lives in poverty, according to the UN.

Diaspora

In its 2022 publication of its migrant database, the UN estimates that at 18 million, the Indian diaspora is the largest in the world, accounting for 6.4 per cent of the total stock of international migrants (281 million) in 2020.

Over the years, our perceptions about the diaspora have also transformed from ‘brain drain’ to ‘brain gain’, spurred by the contributions that Indians have made in various fields in the global arena, including information technology, entrepreneurship, international politics, medicine, arts and culture, with some of them becoming Nobel laureates. It is estimated that over 90 out of 1078 founders of about 500 unicorns in the US are persons of Indian origin. According to a recent study, professionals in the areas of science, technology, engineering, and mathematics (STEM) play an important role in the U.S. economy by providing cutting-edge ideas and technologies. Immigrants from India are the largest country of birth group, accounting for 28.9 percent of all foreign-born STEM workers.

The Indian economy has been a beneficiary of this dynamic and industrious diaspora. India currently receives the highest flow of remittances in the world at US $ 108 billion in 2022, up by 24.6 per cent from a year ago, and accounting for 3 per cent of India’s GDP. Additionally, Indians residing abroad hold deposits in Indian banks cumulating to US $ 136 billion at the end of February 2023.

Diversification

The Indian economy is undergoing a quiet but fundamental transformation encompassing all its sectors. While software and business services are the main drivers of this robust performance, advances in IT have not only made services more tradable but also increasingly unbundled: a single service activity in the global supply chain can now be fragmented and undertaken separately at different geographical locations. Jurisdictions have accordingly been decentralising and diversifying their supply chains to ensure business continuity. These factors have led to a new channel of IT-enabled services - large multinational corporations (MNCs) are setting up Global Capability Centres (GCCs), which are offshore offices, delivering a wide array of services across IT sector verticals.

Digital Revolution

India is playing a pivotal role in the ongoing fifth technological wave – the information and communication revolution. We have emerged as the largest player in real-time payment transactions globally, with a share close to 50 per cent. The Unified Payment Interface (UPI) is the mainstay of the retail payment ecosystem, with around 9 billion transactions in April 2023 alone and this is attracting global attention. The India Stack creates a unified software platform to bring our population into the digital age. India Stack is the largest open application programming interface (API) in the world. It is being implemented in stages, starting with the introduction of the Aadhaar Universal ID numbers; the introduction of electronic Know Your Customer (eKYC) which enables paperless and rapid verification of identity details; e-Sign whereby users attach a legally valid electronic signature to a document; UPI enabling cashless payments; and most recently, DigiLocker, a platform for issuance and verification of documents and certificates. The benefits of India Stack are being widely exploited by rising mobile penetration. It is argued that India Stack could fast-track the move to digital payment systems worldwide and mark the end of cash.

Digitalisation is also powering a revolution in the cross-border payments space. India is linking UPI with other national fast payment systems (FPS). The UPI has been linked with Singapore’s PayNow in a move that is expected to make cost-effective cross-border peer-to-peer (P2P) transfers using mobile apps, and deepen trade, travel, and remittance flows between the two nations. Other link-ups are on the anvil. Within India, too, increasing interoperability across domestic payment modes is being prioritised. India is also gearing up for the launch of the digital rupee. Internationalisation of home-grown payment modes is being enabled through tie-ups with payment service providers that allow QR code-based merchant payments in Bhutan and Singapore. Leveraging the growing popularity of the UPI, this payment facility has been extended to inbound travellers from the G20 nations for effecting local merchant transactions.

Diplomacy

India's G20 Presidency is a watershed moment in our history as we seek a central role in finding pragmatic global solutions for collective well-being and promoting a sustainable and inclusive future for all. G20 brings together the world’s largest economies on one platform for collective action, coordination and consensus building in our vision of Vasudhaiva Kutumbakam – One Earth – One Family – One Future.

India is prioritising a reformed multilateralism that creates a more accountable, inclusive, just, equitable and representative multipolar international system for the 21st century. Our priorities include addressing the macroeconomic implications of food and energy insecurity; climate change; strengthening Multilateral Development Banks (MBDs); debt sustainability; strengthening financial resilience through sustainable capital flows; financing inclusive, equitable and sustainable growth; leveraging digital public infrastructure; climate financing; and opportunities and risks from technological change.

Decarbonisation

Climate change is manifesting itself at an alarming scale and pace globally. India and other developing economies are highly vulnerable to climate change due to their limited capabilities in climate science and technology and insufficient funding for adaptation and mitigation. The relative costs of transitioning to a greener path are higher for them than for the advanced economies; undertaking the transition can even push them several places down the development ladder. From the developing world, India has emerged as a leading voice on global climate action that is mindful of climate equity and justice considerations.

Concluding Remarks

As you prepare to step out into a fast-changing world, always cherish the unbreakable bond that you have with your alma mater. In this context, your homage should first go to your teachers, the faculty of the IGIDR, who nurtured you with commitment, dedication and sincerity. Our teachers do not just impart knowledge; they awaken in us the desire to be lifelong learners. To quote Swami Vivekananda, “the guru is the means of self- realisation”. I commend the entire faculty, present and past, for shaping the lives of the future of India and for being the soul of the institution that has groomed them to be worthy citizens of our nation and of the world.

Read full speech here.

The Yemen War Can Be Over — If Biden Wants It

Excerpts:

The U.S. is slow-walking peace negotiations, effectively pushing for a resumption of the war. Everybody else directly or indirectly involved — Saudi Arabia, the United Arab Emirates, the Houthis, China, Oman, Qatar, Jordan, etc. — appears to want to put the war behind them. A ceasefire has held for more than a year, and peace talks are advancing with real momentum, including prisoner exchanges and other positive expressions of diplomacy. Yet the U.S. appears very much not to want the war to end; our proxies have been thumped on the battlefield and are in a poor negotiating position as a result.

Reading between the lines, the U.S. seems to be attempting to slow-walk and blow up the peace talks. Triggering a resumption of hostilities would unleash yet another Saudi-led bombing campaign that could win U.S. proxies better terms when it comes to control of the strategically positioned Yemeni coastline. (The Red Sea and the Gulf of Aden link the Indian Ocean to the Mediterranean at the southwestern corner of Yemen, an area so geopolitically important to the flow of oil and international traffic that the U.S. has one of its largest bases, in Djibouti, across the strait.)

Tim Lenderking, the U.S. special envoy for Yemen, has been offering up particularly pessimistic comments on negotiations. “I don’t expect a durable resolution — and we should not — to the nearly eight-year conflict in Yemen to happen overnight,” he said recently in the region. “A political process will take time and likely face numerous setbacks, but I continue to be optimistic that we have a real opportunity ahead of us for peace.” That sounds nice, but decoding the diplomacy, the most important remark there is the prediction of “numerous setbacks” and the confidence that we “should not” expect “a durable resolution.”

In fact, Lenderking is attempting to wish “considerable division” back into Yemeni society. Much of that considerable division has been resolved by the Houthis winning the war. But acknowledging that would give the U.S. and Saudi-backed proxies, which operated largely out of luxury hotel rooms in Riyadh, no real position in the new Yemeni government. That’s why the U.S. keeps pressing for an “inclusive government” — the same phrase the U.S. has used with Afghanistan, demanding that in order for us to release the country’s foreign currency reserves, the Taliban must empower our proxies there (the warlords the Taliban already paid off to hand the country over to them).

In mid-April, as news of the Saudi-Iran-Houthi peace deal emerged, U.S. diplomats rushed to Saudi Arabia to tap the brakes. Axios reported at the time that the Brett McGurk, a top envoy to the region, and Lenderking “underscored the U.S. support for Saudi Arabia’s defense against threats from Yemen or elsewhere and emphasized the need for forging broader regional integration and stability through a combination of diplomacy, deterrence, and new investment and infrastructure.” This saber rattling and talk of new security guarantees came just as hundreds of prisoners were being exchanged, and the world was celebrating the steps toward peace.

A State Department spokesperson, Vedant Patel, said that I was reading too much into the U.S. insistence on transitioning the talks over to the United Nations and making sure the deal is “comprehensive” and inclusive” before peace is reached. “I reject your premise that we’re hostile to these peace talks,” Patel said. “In fact, Tim reiterated our commitment to not just strengthening the UN brokered truce but also how we remain focused on helping the parties secure a new, more comprehensive agreement.”

The U.S. knows that time is not on the Houthis’ side.

But the U.S. knows that time is not on the Houthis’ side. Saudi Arabia is still inflicting a blockade on Yemen, preventing food, medical supplies, and energy from entering the country at anywhere near the capacity needed for basic survival. The Houthis, for their own political and literal survival, need the blockade lifted. If the talks drag on for too long, the Houthis are likely to resume cross-border strikes. Everybody on all sides knows that, which is why the Saudis appear eager to get to a final deal, while the U.S. keeps throwing up new conditions.

Hassan El-Tayyab, legislative director for Middle East policy for the Friends Committee on National Legislation, has said. “I’m very concerned that the administration is adding all these conditions to a full U.S. military exit and a Saudi-Houthi deal. I’m worried that they’d use the idea that we need to have a perfect inclusive peace as a precondition to lifting the blockade […] but the U.S. has no business dictating terms of what peace should look like […] It increasingly seems like the Biden administration would rather slow down diplomatic progress instead of finally just ending the Saudi-Houthi conflict.”

Erik Sperling, executive director of Just Foreign Policy, has said, “Lenderking has made clear that his primary goal is not ending the war but advancing the U.S. and Israeli anti-Iran crusade in the region. He would prefer the Saudis continue their brutal war and blockade against Yemen, even if it means endangering Saudi security, to a deal that legitimises Yemen’s de facto authorities.”

If the U.S. wanted to reduce the risk of restarting the war, it could urge Saudi Arabia to lift the blockade without conditions, or could announce that it will not support a new round of Saudi bombing. The U.S. has resisted doing either.

On Thursday, a group of more than three dozen House Democrats sent a letter to the State Department urging the U.S. to make both of those commitments, urging U.S. diplomats to “[c]learly and publicly state that the United States will not provide any further support in any form to any faction party to the conflict while diplomatic talks to end the war are ongoing and should they fail to reach a diplomatic settlement and return to armed hostilities” and “[c]learly and publicly state that the Saudi blockade of Yemen’s ports — a form of collective punishment against innocent Yemenis — must be lifted unconditionally, as global international humanitarian leaders have long sought.”

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