Global export map 2023 - World Population Review

 

India-Russia Trade: Is Indian Rupee Worthless for Cross-Border Transactions?
By Riaz Haq
CA

 

What good is a currency in global trade if it cannot be used to buy products and services from other nations that a country needs?  The answer to this question came when Russia said it has accumulated billions of rupees in Indian banks which it cannot use. “This is a problem”, Russian Foreign Minister Sergei Lavrov told reporters in India’s Western state of Goa on the sidelines of the Shanghai Cooperation Organization meeting.  “We need to use this money. But for this, these rupees must be transferred in another currency, and this is being discussed now”. 

Russia has decided it won't take any more Indian rupees. Moscow has rejected New Delhi's proposal for the Kremlin to invest rupees from oil and military equipment payments back into Indian capital markets so the currency doesn't pile up.

Only the currencies issued by the governments of the world's largest exporters are useful for buying products and services on the world markets. China, United States, Germany, Japan and the United Kingdom are the world's top 5 exporting nations as of 2020. This makes Chinese Yuan, US Dollar, European Euro, Japanese Yen and British Pound the most important international trade currencies. Of these currencies, only the Chinese Yuan is not impacted by the  Western sanctions  on trade with Russia. Russia wants  India  to convert Indian Rupees to Chinese Yuan to pay for energy and military equipment imports from Russia. 

Yuan vs Dollar in Chinese cross-border trade - Bloomberg

The share of the Chinese Yuan in international trade has been increasing since the US imposed sanctions on the use of the US dollar in trade with Russia. Earlier this year, the Chinese Yuan eclipsed the US dollar as the most used currency for Chinese cross-border transactions, according to  Market Insider . The Yuan's use in cross-border payments and receipts rose to 48.4% at the end of March while the dollar's share slid to 46.7%, according to a  Reuters  calculation of data from China's State Administration of Foreign Exchange. 

The yuan's use in global trade finance remains low, though it has shown steady increases. Data from  SWIFT  showed that the Chinese yuan's share of global currency transactions for trade finance rose to 4.5% in March, while the US dollar accounted for 83.71%, according to Reuters. 

(Riaz Haq is a Silicon Valley-based Pakistani-American analyst and writer. He blogs at  www.riazhaq.com )