This group will most likely include representatives of Russian and Indian banks interested in using national currencies in mutual settlements. Representatives of the ministries of finance may also be invited. Coordination of the work will be undertaken by the International Cooperation and Public Communications Department of the Bank of Russia and the Reserve Bank of India.
“Russian-Indian dialogue on this topic started a few years ago, long before the recent political developments, an official from the press-service of the Bank of Russia said. “However, significant progress in the use of national currencies has not yet occurred. Therefore, participants in the dialogue have decided to now intensify this work, by creating a special working group.”
Theoretically, the transition to settlements using national currencies between Russia and India can be made tomorrow. However, a single decision by the two governments is not enough – because the choice of contract currency, or the currency used in settlements is made by the businesses participating in foreign trade – exporters and importers. To make sure this choice is made in favour of roubles or rupees, it is necessary that it be beneficial to both parties in a transaction, and that the settlement procedure is not more expensive and burdensome. Now making settlements in national currencies is often more expensive and more complicated than in using dollars or euros. “Creating the best possible environment is the task of national regulators, and that includes exchange control bodies and tax authorities,” the Bank of Russia official said. “In addition, the commercial banks servicing foreign trade transactions and settlements of these transactions must work on this. Thus, the goal of the new group is to develop specific measures that would create a convenient regulatory environment for settlements in national currencies and effective schemes for these settlements.”
The problem is compounded by the fact that Russia has not yet been able to organize exchange trading of the Indian currency, as has already been achieved with the Rouble/Yuan pair. The problem is compounded by the fact that the rupee is a not a completely convertible currency. During the discussions, the Russian representatives will have to convince the Indian side to remove the current corresponding restrictions. During the first stage of operations with the rupee, there may be active interest from 8-10 large Russian banks actively working with India. To this number we can also add 5-6 Indian banks operating in the Russian market (two of them – through their “affiliates” in Russia). As the amount of settlements grows, the number of banks interested in this work will obviously grow as well – as is happening now with the Chinese currency.
According to Alexander Deyneko, analyst at the rating agency Rus-Rating, the absence of direct quotations in the rouble/rupee pair is the main problem, which does not allow for a quick move to directly using national currencies in the making of settlements between Russia and India. This is holding back trade turnover. In the last six years, although turnover has increased by 60 percent, it still stands at only at $11 billion, while turnover between Russia and China is almost eight times greater.
Deyneko believes that in the first place interest in the transition to settlements being made in national currencies may come from the large state banks involved in the implementation of intergovernmental agreements, such as VTB, VEB and Sberbank. He also said the interest in the use of Indian currency in interbank settlements has been shown by Zenit Bank, Promsvyazbank, and the Commercial Indo Bank. “As soon as they start trading the rouble/rupee pair on the Russian and Indian markets, the number of banks will increase dramatically,” he believes.
Anna Bodrova, senior analyst at Alpari feels confident that the current volume of trade between India and Russia is not enough to move to settlements using national currencies. In her estimation, in order for this to be promising, it is necessary to increase turnover by 25–30 percent, at the very least, and then to consistently strengthen this trade. To begin with there could be an agreement on currency swapping, and then gradually move on to settlements using own currencies, thus bypassing the dollar. “It would be a promising – to start by having the rupee traded on the Moscow Stock Exchange and watch it for a year or two, in order to assess the degree of volatility and possible risks in using such settlements,” she said.
Following the rupee, talks about the organization of direct payments may be started and with the remaining two partners of Russia in the BRICS – Brazil and South Africa. The Bank of Russia confirmed that a plan to intensify the dialogue with Brazil has been around for several years already, as well as for establishing a dialogue with South Africa. “The specific format of work will be agreed upon with partners, based on their suggestions and proposals,” the Russian central bank’s official noted.