List of Contents
- What is de-dollarisation, what are the global efforts towards the De-dollarisation of trade, and How is India pursuing the de-dollarisation of trade?
- How dominant is US Dollar in global trade?
- About Special Rupee Vostro Accounts
- Why are millions of rupees lying unused with Russia?
- Why Russia wants to hold further trade with India in dollars?
- What India needs to do to ensure successful trade settlements in Rupee?
Source: The post is based on the article “India’s stumble on rupee trading holds a lesson on globalization” published in the Livemint on 10th May 2023.
Syllabus: GS 3 – Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
Relevance: About the trade settlements in Rupee.
News: As China, India, and Russia trying to trade using partner currencies for payment instead of the U.S. dollar. Many Russian banks have opened Special Rupee Vostro Accounts (SRVA) with partner banks in India. Russia has said that it had “accumulated billions of rupees in accounts in Indian banks” and to use this money “the rupees need to be transferred to another currency.”
What is de-dollarisation, what are the global efforts towards the De-dollarisation of trade, and How is India pursuing the de-dollarisation of trade?
|Must read: De-dollarisation of trade: Opportunities and challenges – Explained, pointwise|
How dominant is US Dollar in global trade?
|Read here: The de-dollarisation debate|
About Special Rupee Vostro Accounts
|Read here: Explained | Vostro Accounts and how they facilitate trade|
Why are millions of rupees lying unused with Russia?
In 2022-23, Russia was India’s fourth largest import partner, with a total of $46.5 billion worth of goods imports. Among that, Petroleum and petroleum products alone comprise almost 2/3rd of the imports. Coal and fertilizers were the other major imports.
That same year, Russia was India’s 36th largest export destination with total exports of $3.2 billion. So, Russia ran a $43.3 billion trade surplus, meaning that India had much more to buy from Russia than vice versa.
Further, other countries are unlikely to accept Indian rupees from Russia for payment of purchase, simply because they have limited purchase options with India.
So, Russia is not comfortable holding rupees and wants to be paid in Dollars, Chinese yuan or other currencies.
Note: In 2021, total global exports (goods and services) stood at $27.9 trillion, whereas India’s exports stood only at 2.4% of global exports.
Why Russia wants to hold further trade with India in dollars?
If the trade was held in dollars, then Russia has the options like a) Use the surplus dollars in other countries, b) The dollars could be converted quickly into another currency like the euro and be used to pay for Russian purchases, c) The dollars could be invested in dollar assets like US Treasury bonds to earn a rate of return.
|Read More: Trade Settlement in Rupee – Explained, pointwise|
What India needs to do to ensure successful trade settlements in Rupee?
The structure of the global economy makes it very difficult to carry out any significant amount of international trade without invoicing in dollars. Further, the rupee accounts for just 1.6% of global foreign exchange transactions.
The Russian example shows that India needs to export more so that other countries can use rupees to buy stuff from India.