Note4Students
From UPSC perspective, the following things are important :
Mains level: Impact of deepening Russia-China relations;
Why in the News?
Due to sanctions put by the USA, affected Russia’s usual supply and pressured its domestic production eventually led to China’s share of Russia’s imports surged from 32% in 2021 to 89% in 2023.
What is the issue over the dual hegemony of the dollar and the SWIFT messaging system?
- Effect of Ukraine War: Following Russia’s invasion of Ukraine in 2022, the U.S. and its allies froze $300 billion of Russia’s foreign exchange reserves and imposed a SWIFT ban on Russian banks involved in dual-use goods. This showed the weaponization of the U.S.-led financial system.
- China’s Fears: China, with about $770 billion of its reserves held in U.S. treasuries, fears similar financial penalties if tensions with the West escalate.
- Dual Hegemony: Both Russia and China share concerns over the dominance of the U.S. dollar in global transactions and the influence of the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system, which is integral to cross-border payments.
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- Both countries have tried to de-dollarize their economies and promote alternative payment systems like China’s Cross-Border Interbank Payment System (CIPS).
- However, CIPS is still far from challenging the dominance of SWIFT, and their efforts to create alternative financial frameworks have not seen significant global success.
About SWIFT system:
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What is the issue over the dual hegemony of the dollar and the SWIFT messaging system?
- Trade Dependence: Russia has a minor trade surplus with China, but the trade relationship is imbalanced: China represents 30.4% of Russia’s exports and 36% of its imports, while Russia is only 3% of China’s exports.
- Energy Dominance: Over 70% of Russia’s exports to China are fossil fuels, making it vulnerable to changes in China’s energy needs.
- High-priority goods: In 2023, 89% of Russia’s high-priority goods were imported from China, compared to 32% in 2021.
What does it mean for India?
- Strategic Implications: The deepening partnership between China and Russia has raised concerns in India. Russia, traditionally a close partner to India, now shares a strong relationship with China, India’s primary geopolitical adversary.
- Trade Disparity: India’s trade with Russia remains relatively small compared to the rapidly growing China-Russia trade. This economic disparity limits Moscow’s autonomy in maintaining a balanced relationship between India and China.
- Russia’s Diminishing Autonomy: Given the economic asymmetry and Russia’s increasing reliance on China, especially for critical goods and financial support, it has less leverage to act independently in its relations with India.
Way forward:
- Diversify Strategic Partnerships: India should strengthen its ties with other global powers, including the U.S., the EU, and emerging economies, to reduce over-reliance on Russia for defense and energy.
- Expand Domestic Capabilities: India must invest in boosting its indigenous defence and energy sectors to minimize dependence on foreign partners. Strengthening self-reliance will help India maintain strategic autonomy amid shifting global alliances.
Mains PYQ:
Q The USA is facing an existential threat in the form of China, that is much more challenging than the erstwhile Soviet Union.” Explain. (UPSC IAS/2021)
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