The US dollar controls the global currency market, but it is facing significant problems and may soon lose its dominant position. In addition to a series of efforts to lessen reliance on the US dollar, India and Tanzania have achieved an agreement that will eliminate the need for the US dollar in bilateral trade.
For trade, India and Tanzania have abandoned the dollar.
India and Tanzania have made moves to replace the dollar with their own currencies, the Tanzanian Shilling and the Indian Rupee. Tanzania’s major trading partner is India. According to figures from the Indian High Commission in Dar es Salaam, the value of trade between India and Tanzania in the fiscal year ending March 2022 was $4.5 billion.
According to Binaya Pradhan, India’s High Commissioner to Tanzania, India’s exports to Tanzania reached $2.3 billion (or approximately Sh5.3 trillion), while imports from the East African country were anticipated to be $2.2 billion (or about Sh5.1 trillion) between April 2021 and March 2022. He also added that Tanzanian firms and banks will be able to fully exploit the new framework, allowing for seamless payment in local
Mr. Pradhan went on to say that this decision will boost bilateral trade between the two countries while also helping them conserve foreign cash. According to him, there is a lot of room for growth in commerce between India and Tanzania, which is set to hit $6 billion this year.
How will this be accomplished?
By permitting authorized Indian banks to open Special Rupee Vestro Accounts (SRVA) in Tanzania, the Reserve Bank of India has enabled transactions in local currencies. Tanzanian banks must also open SRVA in India in order to trade through this method. They must then approach authorized Indian banks, who will then approach the RBI with information regarding the arrangement for authorisation. This agreement is presently in effect in 18 countries, including Kenya, Uganda, and Botswana.
Using national currencies in bilateral trade settlements lowers transaction costs and improves cross-border trade efficiency. As a result, trade volumes and economic cooperation between the two countries will expand. This measure will encourage the use of native currencies in cross-border transactions while also reducing reliance on the US dollar, which has recently created economic turbulence in several African countries.
