India and the United Arab Emirates (UAE) have officially started trading with each other in their local currencies.
The Indian government announced on Monday that the country’s leading petroleum refiner, Indian Oil Corp., used the local rupee to buy one million barrels of oil from the Abu Dhabi National Oil Company — not the U.S. dollar.
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This monumental transaction follows the sale of 25kg of gold from a UAE gold exporter to a buyer in India for around 128.4 million rupees ($1.54 million), according to Reuters.
So, what could all this mean for the U.S. dollar on the world stage?
Last year, India’s central bank revealed a new framework for settling global trade in rupees — an idea that came into fruition last month, when India is the world’s third biggest oil importer and consumer signed two agreements with the UAE.
First, the two giants agreed to settle trade in their local currencies — in an effort to cut transaction costs and eliminate dollar conversions. They also agreed to set up a real-time payment link to simplify cross-border money transfers.
The agreements will enable “seamless cross-border transactions and payments, and foster greater economic cooperation,” the Reserve Bank of India explained in a recent statement.
India and the UAE are by no means alone in trying to reduce their reliance on the dollar. Powerful nations across the world — particularly China and Russia — are keen to dethrone the dollar in response to aggressive U.S. sanctions and foreign policy plays.
This trend — deemed “de-dollarization” — has gained such sway that some are questioning whether the dollar’s days of dominance are over. But Treasury Secretary Janet Yellen said no currency currently exists that could displace the greenback.
Yellen’s reassurance follows a 8% decline in the dollar’s share of global reserves in 2022. In an effort to diversify, central banks worldwide have been starting to ditch their dollar reserves in favor of gold.