Russian Sanctions and Unintended Consequences: Rise of Rouble-Based Trade?
Image: Typical FT (Financial Times) headlines on Russian currency, date: 23 March 2022
Last update: 1 April 2022
Some days back a former top forex trader colleague at HSBC Global Banking and Markets and now a monetary economist at a think tank remarked recently that following Russian Central Bank's dollar asset freeze order by US, it is only a matter of time that Russia would be forced to go for trading with the west in rouble only or joint rouble–yuan currency mechanism only, to ensure it remains 100% risk free from sanctions and asset freezes, despite potential inflationary and monetary related risks associated with it. In fact, Financial Times reported Russia is seriously considering to trade gas with Europe in roubles only or as President Putin puts it “The collective west has killed all trust in their currencies.” As if this wasn’t enough, Russian central bank announced that it is in process to back rouble in some form or shape with gold standard with immediate effect.
India, one of the major economies and the world’s largest democracy had already traded with Russia under Rouble–Rupee exchange agreement for many decades during the Cold War era. Post-Cold War era it has been trading on limited scale but this would consolidate further after being placed with US sanctions in 1998 following its nuclear test (more later). Indian banking and finance lawyers privately say that India's finance ministry along with Reserve Bank of India (RBI) and Bank of Russia is “racing against time” in exploring options to “internationalise” SPFS – the Russian equivalent of SWIFT, starting with Russia cross–border banking pilot scheme (which is being helped by the fact that India has some reservations in dealing with China's CIPS – the Chinese nearest, although not exact, version equivalent of SWIFT – though India is ready to accept expansion of China's UnionPay card payment system across certain platforms subject to restrictions). As if this wasn’t enough, according to the president of India’s top export organisation, Federation of Indian Export Organisations (FIEO), with the “West is banning Russia, there will be a lot of opportunities for Indian firms to enter Russia.”
In fact many Indian businesses and retailers in collaboration with India’s RBI are seriously considering setting up joint Indian RuPay–Russian Mir card payment systems—the latter which is already proving to be popular in the emerging markets including Turkey and UAE—“within national payment infrastructures, as well as on interaction of Unified Payments Interface (UPI) and the Faster Payments System of the Bank of Russia (FPS)” according to an Indian official who wishes to remain anonymous so to enable Russian citizens to trade with/buy products from India and vice versa at both consumer and SME level. In fact there are reports that Russia’s Sber Bank has rolled out instant Mir card for foreign visitors to Russia, available at designated branches.
As for international trade with Russia, emerging market countries including Turkey
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