Page 12 - The Indian EYE 012723

OPINION JANUARY 27, 2023 | The Indian Eye 12

weapons to Saudi Arabia while oth- tary Fund’s (IMF) Special Drawing
er Democrats even asked the US to Rights (SDRs) currency. The SDR
withdraw the 5,000 remaining Amer- currently holds five currencies in its
ican troops from many of the bases in reserves—the US dollar constitutes
the Persian Gulf. 43 per cent of these reserves, euro
Despite this initial outrage, 29.3 per cent, Chinese yuan 12 per
Biden administration has back- cent and Japanese yen and British
tracked and has tried to woo its old pound 7.5 per cent each. Howev-
ally back into the fold. On 2 October er, SDRs are units of account for
2018, The Washington Post colum- the IMF, and not a currency per se.
nist and alleged CIA agent Jamal They are standard numerical
Khashoqgi was murdered by a Saudi monetary unit of measurement of
Arabian hit squad inside the Saudi the market value of goods, services,
consulate in Istanbul. In February and other transactions.
2021, a US intelligence report finally The big issue here is how relevant
charged that the hit squad was work- are these developments for the Indi-
ing under the express command of an economy. The US dollar is today
the Saudi Crown Prince MBS. a very costly currency for buying an
Yet as a goodwill gesture to ap- essential commodity like crude oil. In
pease an old friend, the Biden admin- fact, the share of US dollar reserves
istration ruled in November that be- held by central banks in countries
cause Muhammad bin Salman is the around the world has fallen to 59 per
head of state of a friendly country, he cent—its lowest level in 25 years—
enjoys immunity from the jurisdic- the US–Saudi Joint Commission for It is the peg of the US dollar to during the fourth quarter of 2020,
tion of US courts. The ruling by the Economic Cooperation (JCEOR) petroleum, which has started shaking according to the IMF’s Currency
Biden administration actually left the and the US–Saudi Arabian Joint Se- again with major oil producers like Composition of Official Foreign Ex-
federal judge in Washington with no curity Commission (JSCOR). Saudi Arabia, Russia (now a major change Reserves (COFER) survey.
choice but to reluctantly dismiss the According to these agreements, producer of petroleum) and other But does that mean that India
lawsuit against MBS with this obser- the US government promised to pro- OPEC Plus countries increasingly should back China-backed petroyuan
vation: “Despite the Court’s uneasi- vide increased economic and military trading oil in currencies other than initiative, as it would be tantamount
ness, the United States has informed innovation and aid to Saudi Arabia the US dollar. Even India and Russia to moving from one currency’s exor-
the Court that he (MBS) is immune”. and in exchange Riyadh agreed to ex- plan to drop all use of the US dollar bitant privilege to that of another.
Again, the Biden administration clusively price all of its oil in US dol- and the euro in bilateral settlements The US’ central bank, the Federal
quelled the passage of the ‘Nopec’ lars.37 Thus, any nation that would and conduct all trade transactions in Reserve, takes independent decision
antitrust legislation, after quietly import Saudi oil was required to ex- rupee and rouble, a senior Russian on monetary policy to serve the in-
excluding it from a bill in Decem- change their currency to US dollars official has said. terest of the US economy. But as the
ber 2022. The bill, if passed, would before completing the transaction. US dollar is also the global currency,
have allowed cases to be filed against The remaining OPEC countries fol- It is worth noting that Saudi the Federal Reserve’s monetary pol-
OPEC’s attempts to limit production lowed Saudi Arabia’s petrodollar icy actions at times affect the value
of petroleum to increase prices. precedent in 1975. Arabia, whose oil customers of other countries’ currencies and
President Biden made anoth- The US aim in establishing this are now mainly China and In- commodities, which has particularly
er appeasing overture towards the new petrodollar system was to pro- detrimental impact on the currencies
Crown Prince. On 13 December, tect the value of and increase the dia, has recently evinced inter- of developing countries.
yielding to strong opposition from demand for the US dollar. Countries est in joining BRICS, a grouping The time has come for India to
the US administration, Democratic around the world started purchase of not only keep a tab on the develop-
Senator Bernie Sanders withdrew his US dollars and kept them as reserves which includes Saudi Arabia’s ments on the global financial front,
war powers resolution—The Yemen often in US banks to buy oil for their major oil markets—India and but also perhaps participate in bring-
War Powers Act—that would have country, which made the greenback ing about a more just and broad-
ended US support for the Saudi-led strong and the reserve currency of China. The issue of expansion based monetary system, involving a
war on Yemen. the world. Other commodities, such of the bloc will be on the agen- basket of currencies and commod-
This ongoing tension in US–Sau- as gold, copper, agricultural prod- ities, for a more secure and fair fi-
di relations could undermine the pet- ucts, natural gas, etc., are today also da of the BRICS Summit sched- nancial and monetary order for the
rodollar system and the existing glob- traded in US dollars. The rising uled to take place in South Af- future of the world.
al financial system in its wake. strength of the US dollar had many
Simply put, the petrodollar is world leaders and economists wor- rica this year. Dr. Adil Rasheed is Research Fellow at
the combination of two words “pe- ried for a long time. It was former the Manohar Parrikar Institute for De-
troleum” and the “US dollar”. Most French finance minister Valéry Gis- In this context, it is curious to fence Studies and Analyses, New Delhi
of the oil traded worldwide today card d’Estaing who first alleged that note that in June last year, Russian Views expressed are of the author and
is in US dollars. This arrangement the US enjoyed an “exorbitant privi- Foreign Ministry proposed a new do not necessarily reflect the views of
goes back to a 1974 US–Saudi agree- lege” on account of the reserve status BRICS reserve currency, based on a the Manohar Parrikar IDSA or of the
ment, arrived at in the aftermath of of its currency. basket of BRICS currencies, backed Government of India.
the Yom Kippur War and the subse- The US dollar, though, fell pre- by gold and other commodities.
quent oil embargo imposed by the cipitously in value after President Saudi Arabia’s bid to join BRICS, This is an abridged version of an
Gulf states. In June 1974, then US Richard Nixon decoupled the cur- with its petroleum reserves, may give article which of first appeared in the
Secretary of State Henry A. Kissing- rency from the gold peg in 1971. It an added boost to this concept. The Comments section of the website (www.
er and then Crown Prince Fahd of found a new support in the prover- BRICS reserve currency proposal idsa.in) of Manohar Parrikar Institute
Saudi Arabia signed an agreement bial ‘black gold’ or petroleum. This comes as an alternative to the US for Defense Studies and Analyses, New
to establish two joint commissions— started the age of the petrodollar. dollar and the International Mone- Delhi on January 18, 2022

www.TheIndianEYE.com