Crisis as an opportunity: Rupee-Rouble trade should become template to break US dollar hegemony

S MurlidharanUpdated: Tuesday, March 08, 2022, 05:07 PM IST
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Russia is now in the doghouse what with the USA and Euro nations ousting it from the SWIFT international money transfer messaging system, throwing its international trade pell-mell./ Representative image | Photo credit: IANS

Like necessity being the proverbial mother of invention, a crisis too can play a catalytic role in ending dithering and full-scale adoption of a system---Rupee-Rouble trade--- hitherto embraced half-heartedly and sporadically.

Russia is now in the doghouse what with the USA and Euro nations ousting it from the SWIFT international money transfer messaging system, throwing its international trade pell-mell. It is for Russia to seize the moment because it has a point to prove in addition. The sword of Damocles has been hanging over its head with the US government threatening to freeze its dollar deposits in the USA since the Cold War days. This was in fact responsible for the phenomenon of Eurodollars, US dollars belonging to the erstwhile USSR parked in the European banks.

It is not as if Russia alone has been chafing at the US dollar hegemony which many in the know aver is vastly undeserved with the greenback ceasing to be exchangeable for gold since 1971 when the US cunningly and stunningly reneged on its promise to give any government one ounce of gold for every bunch of $35. That the gold exchange standard was pure bluff and buster with the US hardly having enough gold to underwrite its currency is another story. Truth be told, even the European nations, particularly Germany and France, have been itching to dethrone the greenback with their own common currency Euro but haven’t been successful with Switzerland and Britain not adopting Euro as common currency.

Rupee-Rouble trade, as the name suggests, is a settlement arrangement where a Russian bank keeps enough INR deposits to pay off the Indian exporters to Russia in INR. Correspondingly on the flip side, an Indian bank keeps enough Rouble deposits in Russia to pay for Indian imports. That makes dependence on the US dollar unnecessary. That, however, is easier said than done what with the US dollar being the link currency for determining the exchange value of any two currencies with both Rouble and INR not being hard currencies i.e., freely floating in the international currency markets.

To wit, INR-dollar is Rs 77 and Rouble-dollar is 110. Ergo, Russians have to shell out 1.428 (110 by 77) Roubles for every INR. This is how the exchange rate between Rouble and rupee is derived indirectly and such valuation is going to be as volatile as mercury what with Russia digging in and attacking Ukraine despite mounting international pressure.

A battered Rouble in the wake of its war with Ukraine works in India’s favor with imports costing less. India and Russia had bilateral trade of $8.1 billion in the fiscal year ended March 2021, with exports to Russia at $2.6 billion and imports at $5.5 billion. So, when Indian officials and Russian officials sit across the table, they have to find an exchange rate that while being fixed, doesn’t hurt one side unduly.

India, in other words, may have to stoop to conquer in the realization that the devaluation of Rouble is entirely on account of geopolitical polemics. But it can and should extract its pound of flesh by making Russia supply oil and gas on favorable terms, maybe with a pipeline lubricating the deal. India needs to beef up its strategic oil reserves in cavernous Mangalore mountains and Vishakapatnam.

The rupee-rouble exchange is not new. In 1953 Indo-Soviet trade agreement contemplated all payments in settlement of imports and exports between the two nations being made in INR. But this arrangement was dropped in 2005 when it resulted in Russia being saddled with enormous quantity of INR what with India being the net importer. However, the two nations once again embraced rupee payment for Russian export of S-400 Triumf air defence system in 2019 with the deal being for US 5.2 to 5,6 billion to escape sanctions by the US under its Countering America’s Adversaries Through Sanctions Act (CAATSA). INR-Rial agreement with Iran similarly was to escape the American ire but had to be abandoned when the Trump administration extended the bar on its currency being used to a complete bar on import of oil itself from the Gulf nation.

The two governments are keen on INR-Rouble trade and the nuts and bolts of the arrangement would be announced soon hopefully. Indian exporters are in a quandary with Rouble testing new low every day. How to fix the price is the issue. Trade cannot come to a screeching halt. Russia’s deputy chief of mission Roman Babushkin was quoted in news report three years ago saying that there had been a five-fold increase in payments in national currencies from about 6 percent to over 30 percent now. There should be no let up in this healthy trend except that war has queered the pitch with steep devaluation of the Rouble; thus calling for negotiations in a spirit of give and take to neutralise partially Russian currency’s devaluation on the back of war and the Western boycott.

By institutionalizing INR-Rouble trade we would be sending a strong signal that the US dollar need not be invincible and unavoidable in international trade and payments. If more and more such agreements are signed between nation states, the world could well one day break free at least partially from the vice-like grip of the greenback on fortunes of other nations.

The Indo-Russian initiative should by no means be construed as acquiescence by India in the Russian expansionism and condonation of its warmongering. Rather it should be seen as pursuit of enlightened self-interest, both short-term and long-term.

(The writer is a veteran columnist and tweets @smurlidharan)

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