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India and Russia are exploring a dynamic rupee-rouble rate to overcome dollar trade barriers in the wake of US sanctions on Moscow, according to The Economic Times report. The development comes as Russia has accumulated a significant amount in rupees while trading with India since the outbreak of the Ukraine war in February 2022.
Currently, banks handling export-import payments or any capital flows between the two countries have to take the dollar route in converting the currencies. This means carrying out two, almost simultaneous, transactions – of rupee to US dollar, and dollars to rouble – in arriving at a rupee-rouble exchange rate.
Additionally, India and Russia are also making attempts to put in place a payment confirmation mechanism. These moves will likely be discussed during a meeting of senior central bank officials and bankers in Moscow this week, sources told The Economic Times. RBI deputy governor T Rabi Sankar and top officials of some public sector banks are part of the team visiting Moscow for a meeting of the India-Russia Joint Business Council for banking and finance.
RBI reviews Russian rupee usage
This comes after the RBI took feedback from banks and financial institutions dealing with Russian funds registered in India. Earlier, Russian financial institutions sounded out the RBI on a mechanism to let them use rupees lying in special accounts in India for investment in stocks and securities in India.
Notably, the accumulated rupee balance is lying in vostro accounts that Russian banks have with Indian banks. The accumulation of rupee in Moscow is an outcome of India paying in its local currency for Russian imports.
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Rupee-Rouble trade: All eyes on RBI
Previously, RBI had allowed the investment of the rupee surplus in vostro accounts in Indian treasury bills and government bonds. However, the rupee-rouble trade may further gather pace if RBI permits the transfer of rupees lying in the trade balance pool to the rupee accounts of Russian foreign portfolio investors.
If RBI approval comes through, the fund could invest the amount in securities listed on Indian exchanges and transfer equivalent amounts in roubles to Russian companies that have exported to India but have not accepted payments in rupees.
Exploring non-dollar trade settlements
Besides, an option like the India-UAE trade mechanism can also be explored. Under the India-UAE system, aimed at settlement of trades in non-dollar currencies, exporters and importers from both countries invoice trades and make payments in rupee or dirham while the central banks agree to accept the foreign currency for the domestic one.
In an arrangement of this kind, the presence of the central banks, playing the role of a market-maker and accepting foreign currency lends a degree of comfort. The same could be replicated for India-Russia trade, especially for larger payments for the purchase of oil and other heavy imports.
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