The dollar or euro could be used to determine how many rubles are the equivalent of a rupee, based on their respective value against the third currency, a top source told FE.
As the government weighs trade in the rupee and ruble to avoid delays or defaults in the wake of the crisis in Ukraine, it plans to link the payment mechanism to a third international currency to ensure Indian exporters do not lose if the russian currency fluctuates strongly.
The dollar or euro could be used to determine how many rubles are the equivalent of a rupee, based on their respective value against the third currency, a top source told FE. “But given the recent sharp volatility in the ruble’s movement, this should be a dynamic rate and not a fixed one,” he added. Such a mechanism allows exporters to receive payments in their local currency.
However, the government has yet to make a final decision on whether or not to allow such a payment mechanism. At the moment, it is closely monitoring the situation, he added.
According to exporters, in order to operationalize this mechanism, the government must designate banks that will anchor the payments. For example, Uco Bank facilitated payments to exporters, through the rupee-rial mechanism, for supplies to sanctioned Iran.
The ruble has weakened by more than 38% against the dollar in 2022. He has lost more than 32% since February 22, when the Russian parliament authorized President Vladimir Putin to use military force outside the country. Similarly, the rupee has risen by 26% against the ruble since the beginning of 2022 and by 23% since February 22.
The government is considering the rupee-rouble mechanism in response to requests from exporters, who fear massive defaults on their supplies to Russia as a result of Western sanctions against Moscow. The Reserve Bank of India has also reportedly sought input from SBI and Uco Bank on the matter.
But such a mechanism in the wake of Western sanctions against Moscow has strategic implications for New Delhi. So, the Treasury Department will consider input from the State Department, other than the Commerce Department and the central bank, before allowing it, sources had previously told FE.
Bankers have said the impact could be limited if sanctions are limited to just the two Russian banks. But if all Russian banks are cut off from the SWIFT global payment messaging network in the future, it will cause problems for Indian merchants. Moreover, very few global banks will be willing to maintain ties with such Russian banks after the sanctions.
New Delhi buys significantly more goods from Moscow than it ships to Moscow (the bilateral trade deficit was $4.34 billion in the first three quarters of this fiscal year). So payments shouldn’t be a problem, if a proper architecture of the rupee-ruble is worked out, exporters say.
India mainly buys petroleum products, diamonds and other precious stones and fertilizers from Russia. Likewise, it ships capital goods, pharmaceuticals, organic chemicals and agricultural products to Moscow. Capital goods and certain consumer products made up 25% of India’s exports to Russia in the first three quarters of this fiscal year, while pharmaceuticals and organic chemicals accounted for more than 22% and agricultural products 18%.
This post Russia-Ukraine War: The Rupee Ruble May Be Pegged To A Third Currency, Probably The Dollar
was original published at “https://www.financialexpress.com/economy/russia-ukraine-war-rupee-rouble-may-be-pegged-to-a-third-currency-likely-dollar/2467232/”