The weaponization of trade

• Countries need to reduce their reliance on the US dollar to protect their economies from sudden policy changes or geopolitical tensions that result from US monetary policies and sanctions.
• This necessity is evident in Russia’s push for de-dollarisation due to the impact of US sanctions on its economy.  

Monetary Sovereignty breach: 

• There is a need for countries to establish greater control over their monetary policies and enhance their financial autonomy.
• This can be achieved through de-dollarisation, as demonstrated by China promoting the use of the yuan in international trade to increase its economic influence and independence.  

Global Financial Instability

• The need for de-dollarisation arises from the desire to create a more diverse global reserve currency system, reducing the risks associated with overreliance on a single dominant currency like the US dollar.
• The European Union’s efforts to increase the international use of the euro are driven by this need for greater financial stability.  

Exposure to Currency Fluctuations

• Dollarisation has increased countries’ exposure to currency fluctuations resulting from the US dollar’s volatility.
• For example, countries with high levels of dollar-denominated debt can be severely affected by fluctuations in the US dollar’s value, leading to increased debt servicing costs and financial instability.  

4. Advantage of Reserve Currency

• Other currencies such as the British pound and the French franc have served as international reserve currencies in the Past.
• It should be noted that it is the currencies of economic superpowers that have usually ended up being used as the global reserve currency.
• As the economic clout of these countries waned, their currencies faced a similar downfall. This was the case, for example, with the British pound which was gradually replaced by the U.S. dollar as Britain lost its status as a global economic superpower in the first half of the 20th century.
• Others point to the expansionary monetary policy adopted by the U.S. Federal Reserve over the decades to argue that this could threaten the U.S. dollar’s status as a global reserve currency.
• The U.S. central bank usually increases the supply of dollars through various means to tackle economic downturns and also to fund the U.S. government’s expenditures.
• But it should be noted that the U.S. Federal Reserve is not the only central bank in the world that has been debasing its currency by engaging in expansionary monetary policy over several decades.
• Other countries have also been expanding their respective money supplies to address their domestic economic problems.
• As long as the U.S. does not debase its currency at a faster pace than other countries, the dollar may manage to hold its value against other currencies and hence its reserve currency status may not come under serious threat.

5. The dominance of the US dollar in the global trade

• The USD accounts for approximately 90% of all Forex transactions. That means that the dollar was one on one side or the other in nine out of 10 global foreign exchange transactions.
• The dollar also accounts for 85 percent of all currency forward and swap markets.
• Almost half of all cross-border loans and international debt securities are also denominated in international debt issuance.
• The dollar is also used for about 50% of all trade invoicing despite the US only accounting for about 12% of global trade.
• The USD comprises 60% of global Forex reserves.

6. Possible implications of De-dollarisation of global trade

• The status of the reserve currency allows the US government to refinance its debt at low costs in addition to providing foreign policy leverage.
• Currently, about 60 percent of foreign exchange reserves of central banks and about 70 percent of global trade are conducted using USD. Thus, a de-dollarized market may reduce such kinds of monopolies.
• US dollar has been repetitively used as an economic weapon against adversaries of Western countries for a long time. E.g., sanctions on Iran, and sanctions on Russia. De-dollarisation will make this step ineffective.
• The notion of de-dollarisation can be instrumental in creating a multipolar world. Each country will look to enjoy economic autonomy in the sphere of monetary policy.
• Dollar supply changes and any impact on the US banking system create ripples around the globe. For example, the 2008 global financial crisis. De-Dollarization will reduce the global impact of the US financial market.
• It might turn the attention of countries towards digital currencies, which are not under control or linked to any country.

Previous year Question

CLEAN ENERGY

1. Context 

In light of its high import dependence on China, India is planning to bring out a policy framework and action plan for the exploration, processing, use and recycling of critical minerals in the country.

2. Key points

• Critical minerals, both primary and processed are key inputs in the production process of an economy.
• The framework aims at self-sufficiency across several sectors and achieving the objective of India's clean energy transition.
• The recent surge in demand for critical minerals across the world, owing to their strategic use in renewable and e-mobility has been threatening developing countries with clean energy transition projects on the anvil.
• The demand for these minerals will increase by two to three times the current trends by 2030, according to the International Energy Agency.
• Unequal distribution, potential supply disruptions, price volatility resulting from overseas dependency and the lack of alternatives for these resources intensify the stress on the global mineral market.
• It is furthered by insufficient investment in the entire value chain and a lack of efficient industrial practices for recycling and recovery.

3. India's green energy transition

• Critical minerals such as copper, lithium, nickel, cobalt and rare earth elements are key to clean energy technologies.
• China currently dominates the sector in terms of the concentration of deposits and processing industries.
• India is on track to becoming the next global leader in the green energy transition.
• The country has been projected to be the world's second-largest economy by 2050.
• India needs to actively engage and incorporate aspects of building a secured and resilient critical minerals supply chain.
• Scaling up the manufacturing of green technologies, including solar panels, wind turbines and batteries for electric vehicles, will result in significant demand and dependency on the supply of a range of critical minerals in future.
• Since these minerals, especially rare earth minerals are key to a low-carbon economy, stronger regulations on this front are vital to addressing the environmental and social impacts of mining and processing these minerals.

4. Disruption of the supply chains

• The Covid-19 pandemic, coupled with Russia's war on Ukraine, disrupted the supply chains of critical minerals.
• China, the most dominant player in the critical mineral supply chains, is still struggling with the Covid-19 lockdowns.
• As a result, the extraction, processing and exports of critical minerals are at risk of slowdown.
• On the other hand, Russia is a major producer of nickel, palladium, titanium, sponge metal and the rare earth element scandium.
• Ukraine, one of the major producers of titanium, also has reserves of lithium, cobalt, graphite and rare earth elements, including tantalum, niobium and beryllium.
• But the war between the two countries has disrupted global critical mineral supply chains.
• As the balance of power shifts across the continents, the critical mineral supply chains may get affected due to growing partnerships between China and Russia.
• Supply chain security for the minerals and materials needed in clean energy technologies has become a strategic issue in the past few years.
• Despite their potential to delay the pace of clean tech deployment, these minerals have now become the latest frontier for geo-economic rivalries.
• To ensure the mineral security of the country and to attain self-sufficiency, the Ministry of Mines has created a joint venture company, Khanji Bidesh India Ltd (KABIL).
• But the present policy regime reserves these minerals only for public sector undertakings.
• The country needs to encourage and incentivise the private players in the sector to venture globally in parallel with KABIL.

5. India's engagement with other countries

• India is currently a member of The Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development, which supports the advancement of good mining governance.
• Recently, India and Australia decided to strengthen their partnership in clean energy transition and create resilient supply chains for critical minerals.
• Australia committed $ 5.8 million to the three-year India-Australia Critical Minerals Investment Partnership.
• India must proactively engage with global players to secure its place in international partnerships on critical minerals.
• Last year, the United States formed the Minerals Security Partnership (MSP),  a global alliance to reduce dependence on China.
• MSP is an ambitious new alliance comprising Australia, Canada, Finland, France, Germany, Japan, the Republic of Korea, Sweden, the United Kingdom, the US and the European Commission.
• The alliance intends to ensure that critical minerals are produced, processed and recycled in a manner that supports the ability of countries to realise the full economic and sustainable development benefit of their geological endowments.

6. The Way Forward

• India needs to actively engage with global players to secure its seat in MSP
• The processing technologies required for utilising critical and strategic minerals are not widely available in India.
• The country needs to use the vast network of scientific and technical Institutions to identify the necessary technologies and work on developing the same domestically.
• It can be achieved by partnering with global alliances and strengthening its case for becoming an active member of the MSP.

For Prelims: MSP, Critical Minerals, India-Australia, Clean Energy, International Energy Agency, Covid-19 pandemic, Russia's war on Ukraine, Ministry of Mines,  For Mains: 1. What are Critical Minerals? Discuss the need for India to deepen its global partnerships on critical minerals. (250 Words)

 

Previous Year Questions   1. Consider the following minerals: (UPSC 2020) 1. Bentonite 2. Chromite 3. Kyanite 4. Sillimanite In India, which of the above is/are officially designated as major minerals? A. 1 and 2 only    B. 4 only     C. 1 and 3 only     D.  2, 3 and 4 only   Answer: D   2. Recently, there has been a concern over the short supply of a group of elements called 'rare earth metals.' Why? (UPSC 2012) 1. China, which is the largest producer of these elements, has imposed some restrictions on their export. 2. Other than China, Australia, Canada and Chile, these elements are not found in any country. 3. Rare earth metals are essential for the manufacture of various kinds of electronic items and there is a growing demand for these elements. Which of the statements given above is/are correct? A. 1 only    B. 2 and 3 only    C.  1 and 3 only    D.  1, 2 and 3   Answer: C   3. With reference to India, consider the following statements: UPSC 2022 1. Monazite is a source of rare earth. 2. Monazite contains thorium. 3. Monazite occurs naturally in the entire Indian coastal sands in India. 4. In India, Government bodies only can process or export monazite. Which of the statements given above are correct? A. 1, 2 and 3 only     B. 1, 2 and 4 only    C. 3 and 4 only    D.1, 2, 3 and 4   Answer: B   4. With reference to the management of minor minerals in India, consider the following statements:  (UPSC 2019) 1. Sand is a 'minor mineral' according to the prevailing law in the country. 2. State Governments have the power to grant mining leases of minor minerals, but the powers regarding the formation of rules related to the grant of minor minerals lie with the Central Government. 3. State Governments have the power to frame rules to prevent illegal mining of minor minerals. Which of the statements given above is/are correct? A. 1 and 3 only     B. 2 and 3 only      C. 3 only       D. 1, 2 and 3   Answer: A   5. Consider the following minerals: (UPSC  2013) 1. Calcium 2. Iron 3. Sodium Which of the minerals given above is/are required by the human body for the contraction of muscles? A. 1 only     B. 2 and 3 only    C. 1 and 3 only    D. 1, 2 and 3   Answer: D   6. Among the following pairs of minerals and districts, which one is correctly matched? (BPSC Combined Competitive Exam) A. Limestone - Kaimur B. Mica - Bhagalpur C. Quartzite - Madhubani D. Lead-zinc - Gaya E. None of the above/More than one of the above   Answer: A   7. Match List - I with List- II and select the correct answer using the codes given below the lists: ( UPPSC  2016) List – I (Centre)      List – II (Minerals)   (A) Makum (i) Iron Ore (B) Dallirajhara (ii) Coal (C) Koraput (iii) Manganese (D) Chitradurga (iv) Bauxite 1. (A) - (3), (B) - (2), (C) - (1), (D) - (4) 2. (A) - (2), (B) - (1), (C) - (4), (D) - (3) 3. (A) - (4), (B) - (3), (C) - (2), (D) - (1) 4. (A) - (1), (B) - (2), (C) - (3), (D) - (4)   Answer: 2   8. Match List I with List-II and select the correct answer using the code given below the Lists: (UPSC CAPF  2017)  List II (Mineral) List II (Mine) A. Zinc 1. Amjhore B. Gold 2. Sukinda C. Chromite 3. Zawar D. Pyrita 4. Hutti 1. A - 1, B - 2, C - 4, D - 3 2. A - 3, B - 2, C - 4, D - 1 3. A - 3, B - 4, C - 2, D - 1 4. A - 1, B - 4, C - 2, D - 3   Answer: 3   9. Which one of the following is the appropriate reason for considering the Gondwana rocks as most important of rock systems of India?  (UPSC 2010) A. More than 90% of limestone reserves of India are found in them B. More than 90% of India's coal reserves are found in them C. More than 90% of fertile black cotton soils are spread over them D. None of the reasons given above is appropriate in this context   Answer: B   10.  Consider the following statements: (UPSC  2013) 1. Natural gas occurs in the Gondwana beds. 2. Mica occurs in abundance in Kodarma. 3. Dharwars are famous for petroleum. Which of the statements given above is/are correct? A. 1 and 2    B. 2 only   C. 2 and 3    D.  None   Answer: B

 

Source: The Down to Earth

PARIS AGREEMENT

1. Context

The last eight years, 2015-2022, have consecutively been the warmest years on record globally, according to the recent State of the Global Climate 2022 report by the World Meteorological Organization (WMO) released in Geneva.

2. What is Paris Agreement?

• Paris Agreement is a multinational agreement that was signed as part of the UNFCCC with the intention of reducing and mitigating greenhouse gas emissions.
• 196 nations ratified the climate change agreement at the Conference of the Parties (COP 21) in Paris in December 2015. It is an international agreement that is binding on all parties involved.
• Achieving the long-term temperature goal was the purpose of the Paris Climate Accord. To attain a world without greenhouse gas emissions by the middle of the century, nations strive to peak global greenhouse gas emissions as soon as possible.
• The Paris Climate Accord's major objective is to keep global warming well below 2° Celsius and ideally below 1.5° Celsius in comparison to pre-industrial levels.
• The Paris Agreement is a watershed moment in the multilateral climate change process because it brings all nations together for the first time in a binding agreement to undertake ambitious efforts to combat climate change and adapt to its effects.

3. COP21

• To keep the rise in the average world temperature to well under 2°C above pre-industrial levels. To continue making efforts to keep global warming to 1.5°C over pre-industrial levels, knowing that doing so would greatly lessen the dangers and effects of climate change.
• The Agreement also mentions achieving the global peaking of emissions by the middle of the century while taking into account the fact that developing nation Parties will have a longer peaking period.

4. What are NDCs

• At the Conference of the Parties (COP21) of the U.N. Framework Convention on Climate Change (UNFCCC), which took place in Paris in December 2015, nations from all over the world pledged to establish a new global climate agreement by that time.
• In advance of a new international agreement, nations have committed to publicly state their Intended Nationally Determined Contributions or the climate activities they plan to take after 2020.
• The 2015 agreement's ambitious goals and whether the world is put on a course toward a low-carbon, climate-resilient future will be largely determined by the INDCs.
• The Intended Nationally Determined Contribution (INDC) of India has also been submitted to the United Nations Framework Convention on Climate Change.
• Countries communicate actions they will take to reduce greenhouse gas emissions to meet the Paris Agreement's goals in their NDCs.
• Countries also communicate actions they will take to build resilience to adapt to the effects of rising temperatures in their NDCs.

Image Source: The Hindu

5. Highlights of the report on the performance of the Paris Agreement

• After the signing of the Agreement, the last eight years (2015-2022) have consecutively been the warmest years on record globally.
• The situation could have been far worse if the La Nina weather event had not occurred in the past three years, which has a cooling effect on the weather system.
• Globally updated Nationally Determined Contributions (NDCs) to limit global warming to 1.5 degrees Celsius have failed even to achieve a 2-degree Celsius target.
• The Paris Agreement has not been able to equitably phase out fossil fuels predominantly responsible for the climate crisis.
• Neither the NDCs nor the disaster risk reduction and climate risk management plans are in place to combat climate-induced extreme weather phenomena.

6. A series of climate records fell over in 2022, the report showed. 

• Global mean temperature rising: The global mean temperature in 2022 was 1.15°C, ranging from 1.02°C to 1.28°C above the 1850–1900 average. This was the highest on record for the past eight years. The value is about 0.2°C higher than the statistic before 2015. The pre-industrialisation era is considered a benchmark as there was no significant anthropogenic emission at the time.
• Record melting of Antarctica ice: Sea ice in Antarctica dropped to an all-time low, 1.92 million square kilometres, on February 25, 2022. This was almost a million sq km below the mean of the last three decades till 2020. 
• Greenhouse gases surged: The levels of three major greenhouse gases — carbon dioxide, methane, and nitrous oxide — continued to increase in 2022. The data shows that growth rates of all three gases have increased around 20 per cent compared to 2011-15 levels.
• Sea level rise doubled: Global mean sea level continued to rise in 2022. It has doubled to 4.62 millimetres per year during 2013–2022 from 2.27 mm recorded in the first decade of the satellite record (1993–2002). The rate of increase quickened after 2015. Ocean heat content, which measures this gain in energy, reached a new observed record.
• Record thinning of glaciers: Long-term observational data is available for glaciers, which were found to have thinned over 1.3 metres between October 2021 and October 2022. The loss is much larger than before. The cumulative thickness loss since 1970 amounts to almost 30 metres.
• More than half of the oceans saw marine heatwaves in 2022:  Despite continuing La Nina conditions, 58 per cent of the ocean surface experienced at least one marine heatwave during 2022. 
• Heatwaves killed 15,000 in Europe: Record-breaking heatwaves affected China and Europe during the summer, with excess deaths associated with the heat in Europe exceeding 15000. Casualties were reported across Spain, Germany, the United Kingdom, France and Portugal.
• 1,600 suffered deaths from weather extremes in India: India suffered from significant flooding at various stages during monsoon, particularly in the northeast in June, with over 700 deaths reported from flooding and landslides and a further 900 from lightning.

For Prelims: Paris Agreement, Conference of the Parties (COP 21), World Meteorological Organization (WMO), UNFCCC, Nationally Determined Contributions (NDCs). For Mains: 1. Describe the major outcomes of the 26th session of the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC). What are the commitments made by India in this conference? (UPSC 2021)

 

Previous year Question 1. With reference to the Agreement at the UNFCCC Meeting in Paris in 2015, which of the following statements is/are correct? (UPSC 2016) 1. The Agreement was signed by all the member countries of the UN and it will go into effect in 2017. 2. The Agreement aims to limit greenhouse gas emissions so that the rise in average global temperature by the end of this century does not exceed 2°C or even 1.5°C above pre-industrial levels. 3. Developed countries acknowledged their historical responsibility for global warming and committed to donate $1000 billion a year from 2020 to help developing countries cope with climate change.   Select the correct answer using the code given below A. 1 and 3 only B.  2 only C.  2 and 3 only D.  1, 2 and 3 Answer: B   2. The term ‘Intended Nationally Determined Contributions’ is sometimes seen in the news in the context of ( UPSC 2016) A. pledges made by the European countries to rehabilitate refugees from the war-affected Middle East B. plan of action outlined by the countries of the world to combat climate change C. capital contributed by the member countries in the establishment of the Asian Infrastructure Investment Bank D. plan of action outlined by the countries of the world regarding Sustainable Development Goals Answer: B

Source: Down to Earth