India Rejects China’s De-dollarization Proposal at SCO Summit 2024

The Shanghai Cooperation Organization (SCO) Summit 2024 was the scene of major geopolitical tensions. In a move that could redefine the dynamics of international trade, India officially rejected China’s proposal to replace the US dollar with the yuan for trade exchanges.

At the SCO Summit 2024, China, backed by Russia, pushed for de-dollarization by proposing the use of local currencies, mainly the yuan, in international trade transactions. However, India notably opposed this initiative, opting to continue using the US dollar as the reference currency for its trade exchanges. Indian Prime Minister Narendra Modi chose to send Foreign Minister Subrahmanyam Jaishankar to represent him at this summit, sending a clear message of his disagreement with the Chinese proposal.

While India saved by using the yuan and the ruble to pay for Russian oil in 2022, the country ultimately prefers to use the dollar for its future transactions. This decision is driven by both economic concerns and a distrust of China’s global ambitions. In response to Russia's demand that oil purchases be made in yuan, India opted to reduce its imports of Russian oil and pivoted towards the United States, paying in dollars.

This firm stance against China's proposed de-dollarization could significantly impact global economic dynamics. By refusing to adopt the yuan for trade exchanges, India sends a clear message about its commitment to maintaining the US dollar as the dominant currency. This decision could influence other BRICS members, creating a division within the group regarding the future direction of monetary policies.

Russia's support for China's de-dollarization initiatives reveals the shared ambitions of these two nations to reduce global dependency on the dollar. However, India's resistance might hinder these efforts, complicating the implementation of a currency substitution strategy. The immediate impact is already being felt in oil transactions, where India has begun diversifying its supply sources by turning to the United States and paying in dollars instead of yuan or rubles. This strategy not only strengthens the dollar's position in the short term but also demonstrates India's caution towards China's growing economic influence.

The long-term implications of this strategic divergence within BRICS are still up for grabs. If other member countries decide to follow India's example, the dominance of the dollar could be consolidated, at least temporarily. Conversely, if China and Russia succeed in convincing more nations to follow suit, the much-desired de-dollarization could have a chance of becoming a reality.

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