By Deepak Rangan
Before governments and currencies, trade was done through the barter system- the exchange of goods. Introduction of currencies enabled a common denominator by which goods could be more easily valued, thus currencies became the medium of exchange.
The US Dollar is currently the world reserve currency. But as countries across the world find it difficult to accommodate certain US demands and are barred from using its financial system, they have to find out a medium of exchange- be it their respective national currencies or commodities.
The recent US-Iran dispute over the Middle East nation's alleged nuclear development programme had led to the US implementing financial sanction on Iran- which ultimately meant that countries who used to import oil from Iran suddenly found out that they could not pay for its oil.
India and Iran faced a similar problem and a recent arrangement between the two nations gives us an indication of a possible future where governments can engage in a system of barter exchange without succumbing to international pressures.
The new deal between India and Iran
As per the new arrangement, India will pay 45% of crude oil imports in Indian Rupees and Iran can use the Rupee payments for buying Indian products like machinery,metals, food etc.
Essentially what this does is that it takes the US Dollar away from being the sole medium of international exchange and instead, two countries can trade on one national currency and the nation receiving the currency can use the same for purchasing goods from the other country.
To simplify, just look at India-Iran deal. India buys oil from Iran. India pays Iran in Indian Rupees. Iran uses the Rupee to buy goods from India. Thus throwing the US Dollar out of the picture. In effect, the two countries are engaging in a barter system with the sole difference being that two countries use one of their currency as a medium of exchange.
With dissent in the international community growing, the US dollar faces the threat of extinction in the future. Especially if the US demands other countries to act according to its desires. And even though the India-Iran deal may just be a small step, it also gives us a peek into the future- a future where countries can engage in free trade without its interests being held hostage by the demands of any country.
