Geopolitics and geo-economics play out in seemingly strange yet practical ways. And none was more practical than the disclosure in the media last week that Bangladesh had come to an agreement to pay a debt to Russiain renminbi (or yuan), China's increasingly global currency. With this, South Asia's multi-polar act ratcheted up another notch.
Russia has funded and provided know-how and equipment for a nuclear power plant in Rooppur, along the Padma in western Bangladesh. The total funding amounts to $11.87 billion. Of that a $318 million payment has fallen due. Russia can no longer accept payments via SWIFT, the global payments channel, an account of sanctions by the European Union and other Western countries.
Bangladeshi finance officials have reportedly agreed to repay Russia via CIPS, or Cross-Border Interbank Payment System that is run by China for payments in renminbi. How Russia then transmits those funds to its accounts is a bilateral affair between those two countries. (A large fraction of Russian hydrocarbon exports since the outbreak of its war in Ukraine and subsequent sanctions is already being settled in renminbi and rubles.)
Businesses in Bangladesh are already well enabled to work with China, the country's largest trading partner ahead of India, its largest source of imports, and the largest provider of external loans to its private sector. Last year Bangladesh Bank liberalized rules for China's currency: businesses can maintain accounts and settle trade payments in renminbi; Bangladeshi banks can settle cross-border transactions in renminbi; and so on.
Bangladesh's Renminbi rumble is hardly the first -- or only -- non-dollar trade off in South Asia as a result of the war in Ukraine. In 2022, Russia emerged as India's third largest source for crude oil after Iraq and Saudi Arabia, coming from next-to-nothing to displacing UAE to the fourth spot. Reuters reported early this March that India was settling its Russian energy dues mostly in “non-dollar currencies,” including UAE dirhams -- and the ruble.
Indeed, through much of the Cold War India had a thriving rupee-ruble trade with the former Soviet Union that worked well for both countries. With a foreign relations freeze of sorts with the United States from the 1960s on, the arrangement paid for import of Soviet defense and engineering products and services. The breakup of the Soviet Union and a tanking Russian economy of the time necessitated a tortuous shift out of the rupee-ruble arrangement.
Russia's war in Ukraine and consequent sanctions have brought back that arrangement to some extent. India openly buys oil from Russia (and India's hydrocarbon exports to Europe and elsewhere has concomitantly, and quite mysteriously, increased!). Among other things, India also needs to service a substantial portion of its defence-related equipment -- including its frontline Sukhoi Su-30 MKI fighters.
The dollar-denominated foreign exchange squeeze is, therefore, a pressure that many in South Asia as elsewhere in the world would like to lessen, and China with its Renminbi, backed by its steadily increasing geopolitical, geo-economic and trading clout -- this last re-energized after a Covid stall -- is more than willing to play global banker.
The latest significant salvo for the non-dollar option came on April 13 when, during a visit to China, Brazil's re-elected president Luiz Inácio Lula da Silva said this: “Who decided the dollar would be the (world's) currency?” China has for more than a decade been Brazil's largest trading partner, and the widely reported remark came during a visit during which Lula was accorded a red-carpet welcome by Chinese president Xi Jinping. Lula went further, pushing for a non-dollar trading settlement between Brazil and China, and between Brazil and the other four countries that make up the BRICS grouping: Russia, India, China, and South Africa.
This will need some time to pan out. Meanwhile, even with all the precedent, Bangladesh's renminbi rumble will likely set India on a policy scramble to offset what it will view as a deepening of the Chinese excursion in its geographical backyard.
There is already growing chatter in New Delhi policy circles about China's visibly growing heft in Bangladesh -- even though Bangladesh assiduously shares its foreign policy ardour with any country that serves its national interest, including India. Among other aspects like the massive Chinese footprint in Bangladesh's trade and showpiece infrastructure projects, such chatter points to Bangladesh's acquisition of China-made submarines and the formal inauguration in March of a large submarine base in Cox's Bazar, funded by China.
Even though Bangladesh has for long purchased Chinese defence equipment and armaments, this development is being seen as adding another pearl to China's strategic, so-called string of pearls approach that has already placed such pearls in Myanmar, Sri Lanka, Pakistan, and several other locations along what is sometimes called the Indian Ocean Rim.
There will be some attempt to claw back optics this May, when India Foundation, a think-tank in which that country's Hindu-nationalist right and the national security hierarchy is embedded, hosts its sixth Indian Ocean Conference in Dhaka. The conference has earlier travelled to Singapore, Colombo, Hanoi, Male and Abu Dhabi to establish for India an ocean that remains Indian only in name. Representatives of the member countries of the Quad -- India, United States, Japan and Australia -- who have embarked on muscular seaborne exercises and attitudes to balance what they see as China's growing belligerence in the Asia-Pacific arc -- will be watching.
And Bangladesh will play, because it suits Bangladesh, the same as it suits Bangladesh to display a yen for the yuan. As for China, it's a bit like this: Xi can be surer.
There might even be a message to the conference: May you live in interesting times. In China it's seen more as a veiled curse than a blessing.
Sudeep Chakravarti is Director, Center for South Asian Studies at University of Liberal Arts Bangladesh. He has authored several books on history, ethnography, conflict resolution, and Eastern South Asia. His most recent book is ‘The Eastern Gate: War and Peace in Nagaland, Manipur and India's Far East' (Simon and Schuster).
