WWRR Vol.2.017

illion US$
US$ bn
India
Strategy Note | January 1, 2019
Multiple trade agreements between countries to trade in their
respective currencies
We list all such major agreements in the past 12 months
1. India-Iran agreement to trade oil in INR and Iranian Rial
2. India-UAE agreement to trade in INR/Dirham
3. Russia-China agreement to trade in respective currencies
4. China-Pakistan agree to do bilateral trade in yuan
5. China and Japan signing FX-Swap deal
6. China and Nigeria sign currency swap deal
7. China-Iran deal on oil trading
8. India-Russia defence deals in INR/Rouble
Some of the events/developments which can impact US$
negatively in the near future
● Success of oil futures contract in Chinese yuan - While China has launched
the exchange, its success will determine the fate of the Petrodollar to some
extent.
● India is likely to sign more deals with GCC countries to trade in Indian rupee
in the coming years. Almost all the GCC countries have major Indian
populations who remit significant US$ back home. These remittances are one
of the major reasons for the high breakeven price of oil for most GCC
countries. Hence, creating Indian rupee reserves and promoting imports from
India will be a win-win scenario for India as well as the GCC countries, in our
view.
Figure 13: Remittances in US$ to India in 2017 by Indian
diaspora in GCC countries
16
14
12
10
11.2
13.8
Figure 14: Total US$ outflows to India (approximate figure for
2017) indicates it will be in the interests of Bahrain/Oman to sign
Rs trade agreements. India will benefit if Saudi signs as well.
25.00
20.00
15.00
Title:
Source:
20.23
8
10.00
6
4
2
1.3
4.6
3.3
4.1
5.00
-
-5.00
1.46
-1.21
1.43
-2.80
-5.42
0
Bahrain Kuwait Oman Qatar Saudi UAE
-10.00
Bahrain Kuwait Oman Qatar Saudi UAE
SOURCES: CGS-CIMB RESEARCH, World bank data base
SOURCES: CGS-CIMB RESEARCH, World bank data base
The US will have to lower war expenditure as the demand for
US$ declines, which can create a downward spiral
Going forward, national strategic concerns rather than plain economics will
determine the fate of the US$, in our view. It will be interesting to see if China
succeeds in pushing Saudi Arabia to trade crude in Chinese yuan. That will be a
significant event which can the signal the beginning of the end of the US$’s
dominance in world trade, in our view.
What does it mean for Indian markets? Volatility but
investors with strong stomachs should get rewarded
The world changed in a fundamental way when the US shunned the gold
standard and the US$ became the dominant currency post 1975. The strong
6