Overcoming the Inflation Transfer: Alternatives to the Dollar Demon?
Sumit Ghosh
The recent concerns expressed by our national media regarding payment of
Russian oil imports in Chinese Yuan are based upon the enmity of the Indian
ruling class with the Chinese counterpart. Such an enmity may superficially
seem to foment from border disburbances and entry of counterfeit products in
the market but the related geopolitical considerations are much larger in
context since India finds China as a major rival against its investment
ambitions in Africa [1]. However, the question arises as to why the BJP
government, a potential US ally, has adopted the Nehruvian ‘Non-Alignment’
rhetoric at least ‘in principle’ amidst the ongoing Russia-Ukraine war. A
simple and genuine answer would be – to cease the opportunity of obtaining
crude oil from Russia at a steep discount amidst a global oil price surge due
to the ongoing war. India experienced a peak inflation rate of 7.79% (April,
2022; the highest in last 8 years) just after the war began in February 2022
but shift towards cheap oil source helped it overcome the crisis to a great
extent [2, 3]. Currently, its inflation rate is 4.81% for the month of June,
2023 [3]. While such an economic and political stand is purely a Plan B for the
US oriented saffron camp amidst a desperate economic situation, the temporary
Russian success of such an arrangement has opened the space for discussing
possible ways to counter the hegemony of the US dollar and its imperialist allies.
How can the dominance of the US dollar be a
potential threat?
Because the characteristic feature of cross-border inflation1
transfer makes the US dollar an embodiment of economic doom to its trading
partners. How? The annulment of the Bretton Woods system of gold standard for
foreign trading in 1971 led to its replacement with respective currencies of
different countries and emergence of floating exchange rates (determined by the
supply and demand kinetics of the market). Owing to its political and economic
hegemony, the US dollar became the dominant international currency and has
remained so ever since. The fixed exchange rate (currency exchange rate of a
country pegged to the paper currency of another country or the price of gold) exerts inflationary pressure on a country with stable
balance of payments surpluses. When such a country exports to the US in
dollars, the dollar reserves of the corresponding commercial banks increase and
they pay the local party to the transaction an equivalent amount in their national
currency. The latter then dispatches these funds into economic turnover. In
such countries which accumulate dollar, the excess supply of national money is
not compensated by corresponding hike in the amount of commodities available,
thereby leading to an inevitable inflation i.e., increase in the price of commodities. However, outrush of the same amount of
US dollar reduces the domestic inflation of USA. Similarly, the floating
exchange rate exerts inflationary pressure in countries with balance of
payments deficit. Such a deficit leads to a drop in the market exchange rates
and corresponding increase in the price of imported commodities. Rise in import
cost raises the domestic manufacture cost and contributes to inflation.
Therefore, such phenomena can be expressed as transportation of inflation from
one country to another Here, we are concerned with transfer of inflation from USA to the country in question (for detailed reading - [4, 5]).
India’s export of Russian crude oil has increased after the onset of the
Russia-Ukraine war. Since then, Russia has remained the second largest oil
supplier to India. The current Indian buyers of Russian oil include Nayara
Energy, Hindusthan Petroleum, Bharat Petroleum, Mangalore Refinery &
Petrochemicals and Indian Oil Corporation. Currently, India and China are key
buyers of Russian crude oil [2]. India has been negotiating with Russia for an
alternative rupee-rouble payment system instead of the US dollar or Euro ever
since the onset of war. However, the rupee-rouble
negotiations have lost steam primarily because India has not been able to sell
back anything to Russia for the latter to convert its rupee reserves (leading
to a $43 billion trade deficit for
2022-23) [6, 7]. Oil trade in Dirhams (currency of UAE) has also reached a
similar stagnation point for India and Russia [7]. Therefore, much to India’s
reluctance towards Chinese intervention, Russia wants payments in a currency
which is useable and easily convertible for them, preferably the Chinese Yuan.
Secondly, the war with Ukraine and dwindling oil
revenues due to Western sanctions has induced a budget deficit in Russia. So, it is trying
to sell the Chinese Yuan reserves to address the deficit [8]. Therefore,
Russia is opting for energy payments in yuan and
rouble [9]. Amidst all such limited non-dollar and non-euro transactions,
Russia has been successful in stalling the vicious inflation transfer from the
West to some extent and as a consequence, their inflation rate has reduced from
17.8% (April, 2022; highest in last 21 years) to 3.2% (June, 2023) [10, 11].
Amidst
the Russian success in stalling the inflation transfer, schemes of de-dollarization are emerging from various economic
camps. While China had introduced the petroyuan way back in 2018, Russia and
Iran have begun working on a gold backed cryptocurrency since this year [12]. The
Brazilian President Lula de Silva has proposed a common trading currency for
the Mercosur
trade bloc comprising of Argentina, Brazil, Uruguay and Paraguay [13]. The Russian embassy in Kenya announced that the BRICS
nations are trying to come up with a common gold backed trading currency [12].
While Lula has been quite vocal on such developments, the New Development Bank
of BRICS has turned down the possibility of such a common currency [14, 15].
Even the Indian External Affairs Minister S. Jaishankar has turned down such a
possibility citing their apathy towards a mechanism which will strengthen the
Chinese dominance.
What are the obstacles in the path of this
de-dollarization policy? (i) US Dollar is
still a powerful global reserve currency, (ii) there are several geopolitical
rivalries among those seeking an alternative and (iii) even the alternative
Yuan and Dirhams are pegged to dollar due to the latter’s easy convertibility
and liquidity [7]. To add, ‘concerns’ in thinking of any alternative involving
the Chinese can stem from its exploitative relations with huge masses of Africa, South and
East Asia, its ambition to advance to the
imperialist core2 of the world capitalist system and the subsequent
inevitable changes in the characteristics of the yuan as the new currency demon
[16]. Therefore, the quest for an alternative trading mechanism should involve long
term vision, building mutual trust, formulating alternative trade channels and enforcing
pragmatic efforts amongst the peripheral2 countries alongside a
skeptical approach towards the exploitative semi-peripheral2
companions. Here, it must be clarified that such an alternative trading
mechanism is essential not only in a phase of continued reaction but also for
those nations entering or have already entered a revolutionary phase of working
people oriented socio-economic transformation. Hike in price amidst constancy in the number of
commodities produced every time is a neoliberal feature responsible for
inflation following a GDP growth phase [4]. Therefore, cyclical recurrence of
economic crisis would not wither away through such de-dollarized arrangements
but can provide a temporary relief through a people’s government in a prolonged
reactionary phase so that the revolutionary camp can buy more time to make
arrangements for an eventual social transformation.
To
end, as India’s own imperialist bourgeoisie stick to their ambition of moving
from the periphery to the semi-periphery of the world capitalist system amidst
enormous poverty, income disparity and unemployment, all attempts towards
trading alternatives will be thwarted by the imperialist agenda of the right
and ultra-right parties who come to power. Therefore, for India to become a
reliable ally in this alternative, the Indian Left must be ambitious enough to
dream of an electoral and/or revolutionary success.
Footnotes
1. “Inflation is the process by which paper
money loses value. This depreciation is reflected quantitatively in a rise in
prices.” – Inflation under Capitalism Today, Prof. S. M. Nikitin, Progress
Publishers Moscow, 1984.
2. The
world capitalist system
is divided into 3 zones: the imperialist core (comprising of countries exhibiting
monopolistic high-profit production), semi-periphery (comprising of countries
with an admixture of core and periphery like production processes) and
periphery (comprising of countries exhibiting competitive low-profit production);
surplus value gets transferred from the periphery to the core, resulting in accumulation
of global wealth in the imperialist core countries.
– China: Imperialism or Semi-Periphery?, Minqi Li, Monthly Review, 2021 [16,
17].
References
1. https://foreignpolicy.com/2021/06/17/india-china-africa-development-aid-investment/
3. https://tradingeconomics.com/india/inflation-cpi
4. https://jabardakhal.in/english/neoliberalism-no-reformist-solution-to-its-crisis/
5. Inflation under Capitalism Today, Prof. S. M. Nikitin,
Progress Publishers Moscow, 1984.
7. https://www.youtube.com/watch?v=j1xfxcUOzGo
10. https://tradingeconomics.com/russia/inflation-cpi
11. https://jabardakhal.in/english/is-crisis-knocking-at-the-door/
14. https://www.mining.com/russia-other-brics-nations-planning-new-gold-backed-currency/
16. https://monthlyreview.org/2021/07/01/china-imperialism-or-semi-periphery/
17. World-System
Analysis: An Introduction, Immanuel Wallerstein, Durham: Duke University Press,
2007, 23-41.
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