How RBI's STRATEGY will KILL the US DOLLAR dominance in the world economy? : Rupee Vs Dollar War

in a major move the reserve bank of india has issued a circular for international trade settlement in rupee the indian rupee trade could be an alternative india and russia can trade without the u.s dollar the system could help india promote its export and facilitate trade with countries under sanction so the rbi is deploying economics 101 increasing the demand for rupee under this new system foreign traders will require more rupees and more demand equals more value [Music] hi everybody on 11th of july 2022 the reserve bank of india made a very very bold announcement whereby domestic traders could settle their imports and exports with indian rupees and this move of taking the inr global is a very very big deal because it is said to help india do trade directly with russia without depending on the american banks so on one side while this could push us into new horizons of world trade with russia iran and venezuela on the other this move would actually destroy our relations both with the us and europe so this is not just a major move from the economic standpoint but also from the jio political standpoint so the question is what is rbi strategy behind bringing this system how will this help us trade with russia and iran in spite of the western opposition how will this help the economy of india and most importantly what are the starting materials to help you understand this system better this video is brought to you by multiple but more on this at the end of the video [Music] the first thing you need to understand is why is rbi suddenly allowing international trades to be settled in inr well this is because when russia invaded ukraine the american sanctions removed russia from something called the swift network and this has brought several trade challenges for india and many other countries now to understand this rbi strategy we first have to understand how does the existing swift network work and how have the u.s and europe very cleverly bullied the world trade with sanctions in the name of world peace so let's understand how does the swift network work you see guys the swift network usually involves six different entities these are the indian trader indian bank american bank one american bank two foreign bank and foreign trader now the highlight over here is that the indian bank will have an account in the american bank where it has its money in dollars similarly the sri lankan bank will have a bank account in american bank 2 where again they will store their money in u.s dollars this is because only u.s banks can hold dollars this is the reason why you will see that almost all the banks in the world have an account with a u.s bank wherein they have their money stored in dollars so let's say reliance wants to import minerals worth one crore rupees from sri lanka so what reliance would do is they would give the indian bank one crore indian rupees and ask them to pay the same amount in dollars to the sri lankan traders account in the us so now that indian bank has one crew rupees in its indian account it would send a message to its dollar account in america to send one crore worth of dollars to sri lanka's bank's dollar account in the u.s in this case assuming 80 rupees to dollar to be the exchange rate 125 000 would be transferred from the indian account in the us to the sri lankan account in the u.s and now that the sri lankan bank has 125 000 in the u.s account it would pay the sri lankan trader the equivalent of 125 000 from its account in sri lanka so assuming the exchange rate to be 350 between dollars and sri lankan rupee the sri lankan bank would pay 4 crore 37 lakh 50 000 sri lankan rupees to the sri lankan trader so here as you can see this system requires a lot of communication between different banks it needs a lot of calculation to be done due to fluctuation in exchange rates and more importantly it requires a complex network of thousands of banks from all across the world therefore it is managed by a highly sophisticated messaging network called the swift network and this network is very very tightly controlled by both the u.s and europe and the catch over here is that more than 50 percent of the international trades are done through the swift messaging system alone so the question is what is the problem with the system and why is the rbi trying to build an alternative well there are three major problems with this system firstly since this entire system is controlled by europe and the us if they do not like you they will just impose sanctions and cut you off from the swift network so in short they will not let you trade through the swift system and this is what the west did to iran secondly not letting you trade could still be acceptable but since u.s has control over all the country's dollar accounts they could even freeze your money that is kept in their u.s bank accounts and this is what happened to russia wherein after the ukraine invasion 300 billion dollars of russian foreign reserves have been frozen so in spite of having 300 billion dollars russia cannot use its own money to trade we will limit russia's ability to do business in dollars euros pounds and yen the pressure on russia and on vladimir putin is growing new sanctions on its central bank just today the sanctions against the central bank of russia which were enacted on monday morning are probably the single largest sanctions action in modern history and lastly this system is very very costly since all four entities involved in the system take a commission the cost of transferring money itself costs you anywhere between one to five percent so on a transfer of say 120 crores if the banks add a three percent exchange rate margin that means they would charge you 3.6 crore rupees just of the exchange rate so all of this put together even if india wants to trade with russia even though we do not have anything to do with the russia ukraine invasion just because the west does not like it we are not able to trade with russia with ease and what's even worse is that it's not like the europeans have stopped trading with russia because they realize that if they do not get russian gas their economy will fail so you know what they have made exceptions such that some russian accounts will be allowed to operate so that europe can still use russian gas and at the same time be the moral police of the world you know somewhere europe has to grow out of the mindset that europe's problems are the world's problems but the world's problems are not europe's problems tell me if buying russian gas is not funding the war i mean why is it it's only indian money and oil coming to india which funds but it's not gas coming to europe which ones if if countries in europe and the west and the united states are so concerned why don't they allow iranian oil to come into the market why don't they allow venezuelan or oil to come into the market this is how the west is using its so-called supremacy to hinder other countries trade in the name of moral policing and world peace and this is where ladies and gentlemen rbi's move comes in here's where india has come up with an alternative system to bypass the system and still do business with foreign countries and they did that by allowing international trade to be done in indian currency now if you look at the rbi notification they say that this can be done through something called wastro account so the question over here is what is wastro account how will this transaction actually happen and if executed how will this benefit india well to understand the system let's say a russian company wants to trade with an indian named akshay kumar and he wants to do that without going to swift so now the russian company will have a russian bank account which has money stored in troubles and this russian bank will also have an account in india where they would store the money in indian rupees in an indian bank and this account is what is called as wastro account so basically it's a bank's bank account held by a foreign bank in this case it's a russian bank's bank account held in the indian bank so now if akshay kumar wants to import sunflower oil from a russian company here's how it will work out firstly akshay kumar pays 5 crore indian rupees to the russian bank account in the indian bank which means the washroom account will get 5 crore indian rupees then since the russian bank has 5 crore indian rupees in its indian account assuming exchange rate to be 1.5 this russian bank will use its account in russia to pay the sunflower oil trader a converted sum of 3.33 crore ruble that is how the russian trader gets 3.33 crore rubell in his account now mind you this would also involve commissions from both the indian bank and the russian bank so in reality he would get 3.33 crore rubell minus commission charges in his account similarly this was account will also be used for exports so let's say a russian company wants to import tea from india so the russian company would pay hundred thousand russian rupees the russian bank then since the russian bank has indian rupees stored in the washroom account in india that was through account would pay 1 lakh 50 000 indian rupees to the t company this is again assuming an exchange rate of 1.5 for simplification of calculation so just like last time the commissions will be deducted on both sides and the remaining amount will be transferred this is how the transactions are expected to change format once this system is brought into play now the question over here is if this system is brought into play what are the advantages that india will enjoy well here's where we've got two game-changing advantages and one big threat that is involved in opting for this system the first advantage is that we'll be able to trade with russia which is one of our biggest trade partners with a bilateral trade of 13 billion dollars and considering the condition of russian trade right now we could get our goods at a much cheaper cost secondly it's not just russia but we could also start trading with other countries that have been sanctioned by the united states and this includes critical players like venezuela and iran and fun fact over here is that both these countries had already shown interest in using this kind of system so that's pretty good cherry on the cake over here is that this list also includes the one and only united arab emirates so this system will help us a lot in terms of decreasing our dependence on dollars it will help us a lot in protecting our trade from the whims and fancies of the west and most importantly it will ease the pressure on our exchange rates as of now and lastly the biggest threat to us is that we are literally challenging the dominance of uncle sam's dollars so obviously the united states will definitely not be happy about it so don't be surprised if this move is taken back or if united states threatens to impose sanctions on india because mind you our bilateral trade with u.s stands at 119.42 billion dollars so here's where we might face some trouble this is all that you need to know about the rbi notification its functioning and its geopolitical implications and this brings me to the last part which are the study materials to help you understand this fight of currencies better before we move on let me introduce you to our partners who are the world's first save now buy later app multiple multiple is an anti-thesis to bnpl on the multiple app you can invest for your plannable future spends be it your vacation travel anniversary jewelry dream iphone or even your insurance premium amount you can start with the savings goal for the future spend say three to 12 months in advance to which you add money every month multiple being a sebi registered investment advisory it helps you invest your savings in curated and commission free direct mutual funds that are personalized especially for you and your goals this means that you earn market returns on 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to do is select the payment method for your investments and that's it your smart saving plan for maldi's travel is ready with a market return of anywhere between 5 to 12 irr plus additional brand benefits up to 20 that can save 10 000 rupees more as compared to the bnpl method or credit card or even from your bank savings so if this sounds useful to you check the special link in the description and download this amazing made in india save now pay later app now also there's a special offer of 500 rupees for the think school community in the description so don't forget to use the invite code while signing up moving on the first study material that i'm attaching is this wonderful article written by deepak chennai and here's where he explains this entire system with this sweet little diagram so read through this document and you'll get a very good idea about washroom accounts and the russia india transactions the second thing i'm attaching is a document on the deep technicalities of the swift network so now that you understand the oversimplified version you could go deeper and understand the tech behind the system and thirdly i am attaching a few articles on the u.s sanctions and the information related to swift that's coming straight from their website itself so read through that and do let me know what you think about in the comment section that's all from my side of today guys if you learned something available please make sure to hit the like button in order to make youtube rubber happy and for more such insightful business and political case studies please subscribe to our channel thank you so much for watching i will see you in the next one bye bye [Music]

Channel: Think School

Views: 3,559,225

Keywords: thethinkschool, think school, think, thinkschool, ganeshprasad, think school case study, think school business, RBI, Rupee vs Dollar, End of Dollar study iq, US sanctions on Russia, Russia sanctions, swift sanctions, S Jayshankar, Jayshankar on Europe, West hypcrisy, swift, internationalisation of Rupee RBI, Vostro account, India Forex reserve, Putin, Narendra Modi, Ajit dowal, BJP, Nirmala Sitharaman

Id: icjoSeNEOx0

Length: 13min 49sec (829 seconds)

Published: Fri Jul 15 2022