Rupee-rouble trade arrangement

By Educrat IAS Academy | | 0 comment | 5 April, 2022 | 0

Rupee-rouble trade arrangement:

Rupee-rouble trade is a payment mechanism which can allow Indian exporters to be paid in Indian rupees for their exports to Russia instead of standard international currencies such as dollars or euros.
Under this arrangement, a Russian bank will need to open an account in an Indian bank while an Indian bank will open its account in Russia.
Both sides can then mutually agree to hold currency worth a specified amount in the local currencies in their respective accounts.
If the specified amount is say, $100 million, then the Russian bank’s account in India will have rupees worth that amount while the Indian bank’s account in Russia will have roubles worth that amount.
Once the payment mechanism is in place, the Indian exporter can be paid in rupee from the Russian bank’s account in India and imports from Russia can be paid for with roubles from the Indian bank’s account in Russia.

It is important for India to have an alternative payment mechanism in place with Russia as the US, the EU and the UK have blocked at least seven Russian banks from accessing the Society for Worldwide Interbank Financial Telecommunication (SWIFT).
An estimated $500 million is pending for goods already shipped by Indian exporters and it is now not possible to get the payment through the regular SWIFT channel.
Since transaction with Russia cannot be carried out in international currencies such as the dollar or the euro, a rupee payment mechanism will determine if the trading will continue or not.

The fluctuation in the value of rouble could make it difficult to implement the rupee-rouble payment mechanism.
Firstly, it will be difficult to decide a fair exchange rate between the rupee and the rouble.
Moreover, if the value of the rouble continues falling sharply, then trading may not happen as the rouble in the Indian bank’s Russian account will lose value.
if the sanctions turn product-specific, then it may be difficult for India to use this arrangement
The world would see this as an arrangement by India to by-pass the sanctions post-Russia’s invasion of Ukraine
The US and the EU are already unhappy with India for abstaining at the UN Security Council and the UN Human Rights Commission on all resolutions that criticise Russia for invading Ukraine
If India helps Russia flout economic sanctions, it may then be accused of siding with Russia and this could hurt New Delhi’s diplomatic relations with the Western powers.