Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
Q6. Dollar dominance in global trade and finance constrains the monetary autonomy of emerging economies. Analyse the factors sustaining dollar hegemony. Evaluate its impact on India’s external economic policy. (10 M)
Difficulty Level: Medium
Reference: NIE
Why the question
The growing debate around de-dollarisation, rupee volatility and external sector vulnerability has made global monetary dependence an important issue for India’s economic policy and strategic autonomy.
Key Demand of the question
The question requires analysing the major structural and institutional factors responsible for sustaining U.S. dollar dominance in global trade and finance. It also demands evaluation of how this dominance affects India’s external economic policy, monetary flexibility and trade strategy.
Structure of the Answer:
Introduction
Briefly mention the central role of the U.S. dollar in global reserves, trade invoicing and financial settlements.
Body
- Factors sustaining dollar hegemony: Mention reserve currency status, dominance in trade invoicing, global financial markets and dollar-denominated debt structure.
- Impact on India’s external economic policy: Explain implications for exchange rate management, import dependence, forex reserves, rupee trade settlement and strategic economic autonomy.
Conclusion
Conclude with the need for calibrated de-dollarisation, stronger domestic manufacturing and diversified trade mechanisms to reduce long-term external vulnerability.
