As the rouble careens southward in value and, more importantly, capital flees Russia’s bleak economic future, the likelihood of capital controls being re-imposed by the Kremlin increases geometrically. Once that happens, the rouble will have isolated itself in a manner that belies Vladimir Putin’s 2009 claim that the “Rouble can claim for the role of a reserve currency.”
The present crisis aside, the future trajectory of the Russian economy looks so bleak – for reasons of demography if nothing else – that the future of the rouble is one of retreat, slowly returning to the Soviet shell it had emerged from post-Cold War. And this in turn will reflect an increasingly inward looking worldview of Moscow’s leadership.
It is interesting to speculate as to the trajectory of the rupee, the currency of an economy about the same size as Russia’s. The answer seems to be that the rupee is following a slow but steady path to the internationalisation that Putin alluded to. But New Delhi will do it in a manner far less outspoken than Moscow. Which is why it may succeed.
I am pretty certain no Indian prime minister and possibly finance minister has publicly spoke of the rupee as being a global reserve currency like the dollar or euro. Such musings are left to the Reserve Bank and central bankers are extremely wary of such an Idea.
G Padmanabhan, deputy central banker of India, in a 2013 speech spoke at length about the rupee becoming a currency of the world. “The Indian rupee is a natural candidate for being considered for greater internationalisation.” But this should be largely in the area of “trade invoicing”, he said, and generally in a “careful and gradual manner.” But most of his speech was about the reasons why the rupee had a long way to go: India’s economy was too small, too prone to current account deficits, too dependent on foreign hot money, too inflation prone and so on. Ultimately, no one was using the rupee overseas.
None of this is a surprise. A macro-economically challenged India, rightly, is cautious to a fault about the health of its currency. What is surprising is, when one looks closer at the figures, despite the lack of enthusiasm of New Delhi – and the opposite sentiment in Moscow – the rupee has become nearly as internationalised as the rouble in recent times. And the economic future of India is much better. The rupee worldview is one of greater integration and, possibly, reserve currency status. We should “aspire” to see the rupee as an “international currency” said Padmanabhan.
The latest Triennial Central Bank Survey of the Bank of International Settlements throws up some interesting numbers regarding rupee versus rouble use in the international markets. One, despite the lack of enthusiasm for such activity by New Delhi, the rupee has been bandied around the international currency markets in a manner comparable to the rouble. Two, the rupee’s rise in the international system has a more stable upward trajectory. And this will be greatly enhanced after the Crimean bust-up between Russia and the West.
Example A: the rouble percentage of global foreign exchange market turnover has gone from 0.3% in 1998 to 0.9 in 2010. The rupee went from 0.1 to 1.0 percent in the same period. By 2013, however, the rouble had jumped to 1.6% while the rupee had stayed at 1.0 – reflecting presumably the halving of India’s economic growth rate in the intervening period. One suspects these trends will reverse for both currencies in the next few years.
Example B: When the global foreign exchange market is divied up by currency and by instrument, the rupee fares surprisingly well. The rouble is much more used: daily average in April 2013 the rouble turnover in such markets was $ 85 billion. The rupee figure was $ 53 billion. But the rouble was used much more heavily in spot transactions while the rupee led the way in outright forwards: $ 24 billion compared to $ 9 billion. Since outright forwards lock a buyer of that currency for a set time at a set exchange rate, the greater rupee figure would seem to be a vote of confidence in the stability of the currency – at least over the rouble.
India’s greatest challenge will be to persuade other countries to consider invoicing their trade in rupees. The currency is still too unstable – it just escaped a meltdown last fall. But compared to the rouble who’s present collapse is just a reminder that it went through the same, only worse, in 1993, the rupee looks like its backed by gold. Over 90% of India’s trade is dollar invoiced and even Bangladesh has rejected the use of the rupee for such purposes.
The recent issuance of rupee bonds by the World Bank slowly helps deepen the pool of instruments that are rupee backed – and financial market depth is a crucial criteria for a reserve currency. But the simple lack of full convertibility and the simple size of the Indian economy means the rupee will go global over a longer time frame. However, one prediction that can be made: the rupee will get a seat at the global high table before the rouble.
Vladimir Putin, nine years ago, described the Soviet Union’s collapse as the “greatest geopolitical catastrophe” of the 20th century. While one argue whether that was much of a catastrophe given how dysfunctional the Soviet Union had become in its last few decades, from a Russian perspective that might make sense. Read more
What did the Arab Spring teach us about popular protest? How little, even today, we understand the mechanics of political protest. Read more
Prime Minister Narendra Modi shocked the international system when his government blackmailed the Doha round of the World Trade Organisation by saying, in effect, “give us a permanent food security solution or we will block the unrelated trade facilitation agreement (TFA).” Read more
I have been browsing Henry Kissinger’s latest volume, World Order, and had a chance to hear him live and close-up in New York City. Read more
Once again, the Sino-Indian border is the epicentre of an Asian geopolitical tremor. Not an earthquake, but it causes just enough shakes to weaken diplomatic efforts to at least ease relations between the two countries.
But where the Chinese incursions at Demchok and Chumar unusual?
The difficulty is that the border, for all of its Himalayan proportions, is more fluid than most people realize.
One, there is the issue of demarcations. There are two Lines of Actual Control which tell where the two armies have physical control. In between there is an extensive no man’s land in which snake two claims lines which more often than not overlap each other.
Two, there is the issue of infrastructure. While the Chinese have built extensive infrastructure on their side of the border, India has begun to catch up only in the past five years or so. But this is important: improved infrastructure means more frequent patrols and, say, jeeps instead of pack mules. Change the road system and patrols are more frequent – inevitably the more often Indian and Chinese troops will bump into each other.
Three, the operating procedures between the two sides on handling the border keep changing with new border agreements. These agreements are necessary to keep pace with the improved infrastructure, weapon systems and the entry of such things as helicopters and drones.
This makes it hard to draw from raw numbers whether this is a consequence of a Chinese tactical decision or a simple fallout of, say, a better road and warmer weather that season.
Looking at the raw numbers – of which there are, this being India, different and often contradictory figures depending on the agency one talks to – there is clearly an increase in border transgressions by China in the western sector.
In the period up to 2011, such incursions normally numbered about 200 per year. Then from 2012 this number has doubled to the 430 range. This present year, 2014, is set to match this new range.
Harder to judge is the quality of such intrusions. One thing seems certain is that China border action is focusing on a few specific areas. In Ladakh these are Chumar, Demchok, Pansong Lake (Three Idiots fans please note), Depsang and a half-dozen smaller points. All these largely match the 1959 claims line of China, an older claims line now seemingly in the midst of being revived physically.
There is an additional issue which New Delhi doesn’t like to admit.
Over the years, India has become much less aggressive about patrolling the full extent of its claims area, even the full extent of its LOAC. This seems to have been because of piecemeal decisions over the years that have led the Indian patrols to restrict themselves to hugging the LOAC. As Shishir Gupta points out in his book Himalayan Face-Off, “Indian patrols do not go up to the LAC on advice of the CSG in these areas.” The CSG is the quasi-official China Study Group that advises the government on such issues. This has immediately meant the furthermost claims areas of India have become de facto areas of Chinese control.
After the fall in Sino-Indian relations in the latter years of Hu Jintao, India built up both infrastructure and the began pushing its patrols forward. Confrontations have been inevitable.
So, yes, the Sino-Indian border is becoming just a bit more heated. It will continue to do so. Both these countries are experiencing a rising nationalism. India has also seen the emergence of a more shrill television media that is no longer prepared to accept the relatively common back and forth that takes place on the border of both sides intruding. Better infrastructure, better patrolling and, in the case of India, a sense that too much was conceded in the past decade and needs to be reclaimed.
There is a new norm emerging on the Sino-Indian border for better or worse. And the two governments need to hammer out an even more comprehensive border management agreement to make sure the norm is institutionalized in a manner that keeps the guns quiet.
Scotch succession seems particularly peculiar to most outsiders because the supposed grievances of the Scottish nationalists are so, on examination, meager. Read more
Many Indians ask me how India can avoid a bloody nose if it cozies up to Japan. Some were surprised when Prime Minister Narendra Modi denounced some unname Asian country’s “expansionist” ways and said the continent could not have “18th century” ways of behaviour. “How can he expect China not to react badly?” I was asked. Read more
The decision of Egypt and the United Arab Emirates to carry out airstrikes against Sunni militant groups in Libya on their own, without informing the United States or anyone else, is final confirmation that West Asia is now being driven by a whole host of independent players.
Those who have lived in Calcutta, it is likely they ran into red and yellow mini-buses declaring “Indo-Japani Gate” as one of their destinations. I have never seen the gate and am not even sure where it is, but it was a landmark well known to most in the city. Read more