Kotak CEO Says USD Has ‘Disproportionate Power’ as Reserve Currency

Kotak CEO Says USD Has ‘Disproportionate Power’ as Reserve Currency

The CEO of Kotak Mahindra Bank, an Indian banking and financial services company, has recently voiced his concern about the dominance of the US dollar in global financial markets. The CEO has stated that the US dollar has "disproportionate power" as a reserve currency, retracting his earlier statement in which he cited the currency as the "biggest financial terrorist in the world." He said several countries were exploring alternative reserve currencies to reduce their dependence on the US dollar.

USD is the ‘Biggest Financial Terrorist’ in the World

Uday Kotak, CEO of Kotak Mahindra Bank, a banking and financial services company headquartered in Mumbai with more than USD 8.5 billion in revenue in 2023, cited the subordination of the world markets to the US dollar hegemony. Kotak stated that the USD was "the biggest financial terrorist in the world," disapproving of the power of the US dollar as a reserve currency. Kotak addressed a panel discussion at the ET Corporate Excellence Awards, an annual event of the Times Network.

Explaining his stance, Kotak declared:

"All our money is in nostro accounts, and somebody in the US can say, you cannot withdraw it tomorrow morning, and you are stuck. That is the power of the reserve currency."

This dependence is what is driving several nations around the world to seek an alternative reserve currency. Kotak remarked that this was a "crucial time in world history."

However, Kotak later modified his statements on social media, explaining he wanted to mention the ‘disproportionate power’ the currency had in the world markets. He explained:

"In a recent discussion on the US dollar, I inadvertently used the words "financial terrorist," which I would like to correct. What I meant was that a reserve currency has disproportionate power, whether it is a nostro account, a 500 bps rate increase, or emerging countries holding dollars for liquidity."

Rupee has the Potential of a Reserve Currency

The changing dynamics of global geopolitics and the rise of sanctions against Russia have altered cross-border payments and the use of currencies in international trade settlements. China has been at the forefront of promoting the Chinese yuan as a friendly token for international markets, while Russia has tacitly supported the move.

On the countries with the potential of being the next reserve currency, Kotak stated:

"I don’t think Europe can because it is the disunited states of Europe. I don’t think the UK or Japan have the heft to take that position, though both the British pound and the Japanese yen are free currencies. China has a major issue of trust with many countries around the world."

Kotak believes that India has the potential to make the Indian rupee the next US currency in the next ten years. However, the country must build strong and stable institutions and a robust framework to achieve its objective.

India has already initiated steps to offer other countries to settle cross-border payments with the Indian rupee as part of its most recent foreign trade policy guidance to allow countries facing a dollar crunch to keep trading.

What is your take on Kotak CEO’s opinion on the US dollar as a reserve currency? Please post your comment.