India and Russia are exploring the idea of a benchmark rupee-ruble exchange rate to start direct trade using the two currencies, the Economic Times (ET) has reported. Top regulators and bankers from both nations are seeking to overcome dollar trade barriers created by Western sanctions against Moscow, the outlet added.
The issue will be discussed this week during a visit to Moscow by a deputy governor of the Reserve Bank of India (RBI) and senior officials from some of the country’s state-owned banks, the ET reported on Tuesday, citing sources.
India and Russia have significantly increased mutual trade in recent years, especially after Western countries imposed Ukraine-related sanctions on Moscow in 2022. The Asian country has emerged as the second-largest buyer of Russian crude oil, after China.
According to India’s Ministry of External Affairs, imports of Russian goods to India have surged by about 8,300% since 2021, driven by “strategic crude oil procurement.” Meanwhile, Indian exports to Russia have grown by 59%.
The RBI recently took feedback from local and Russian banks as well as financial institutions dealing with mutual trade, the ET wrote.
Currently, banks that handle export and import payments have to use the dollar exchange rate to convert national currencies, the outlet explained. However, with several leading Russian banks barred from the SWIFT cross-border messaging system, the scope of dollar-based currency transactions has been significantly reduced.
Payments for purchases of oil and other heavy imports require the services of large Russian banks. In this context, the rupee-ruble “market and rate… and a payment messaging system” that could provide an alternative to SWIFT “assume significance,” the ET quoted a banking industry official as saying.
The rupee-ruble reference exchange rate could be set by the RBI and Bank of Russia, and “revised to keep in sync with the underlying market realities,” a senior banker told the outlet.
Banking officials will also discuss measures to allow a greater use of the rupee balance lying in special accounts that Russian banks have with their Indian counterparts, the ET added. The funds have accumulated because rupee payments for Russian imports exceed Indian exports heading the other way.
According to Bloomberg, Russia has accumulated billions of dollars in rupees in Indian banks.
Following Ukraine-related sanctions, Russia and its trade partners in Asia have started to use national currencies for transactions, such as the Chinese yuan and the United Arab Emirates dirham. Russian Foreign Minister Sergey Lavrov said in May that over 90% of bilateral trade settlements between Moscow and its largest partner, Beijing, were made in national currencies.