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HomeTrendsChinese Yuan Gets A Strong 'No' For India's International Trade Settlement.

Chinese Yuan Gets A Strong ‘No’ For India’s International Trade Settlement.

Due to long-standing political issues with its neighbor, India has asked that banks and traders refrain from using Chinese yuan to pay for Russian goods, according to three government officials engaged in policymaking and two banking sources. According to three government sources, India, which has emerged to be a major consumer of Russian oil and cheap coal, would like to settle the upcoming transactions in United Arab Emirates dirhams.

One of the government delegates directly involved with the topic pointed out that although New Delhi is “fine” with overseas commerce handled in dirham, it is “not comfortable” with trade settled in the yuan. The second official asserted that India could not accept payment in yuan until relations between the two countries strengthened.

India cannot accept payment in yuan until relations between the two countries strengthen.

Why ‘Yuan’ is not okay for ‘New Delhi’?

Since 2021, thousands of Indian and Chinese soldiers have been engaged in a deadlock along their disputed Himalayan frontier, placing doubt on the whole bilateral relationship. The five officials stayed tight-lipped when asked if India’s refusal to accept the yuan settlement was also due to economic contemplations.

Last year India’s biggest cement maker UltraTech Cement used Chinese yuan for a consignment of Russian coal, which aroused some suspicions among management as the relationship between India and China worsened after fatal border battles in 2020 in the remote Galwan Valley of Ladakh. The authority discussed the matter with officials of the central bank and bank administrators, after the UltraTech acquisition, the second official added.

The Reserve Bank of India (RBI) is not keen on international trade settlement in yuan, according to two financial officials who are aware of the situation. They also informed that the government has deterred them from employing the currency. They said that Russia was excited about the yuan settlement since it facilitates their acquisition of Chinese goods.

Payments have been made in part by the SBI through its nostro roubles account in Russia for Indian refiners who recently began paying certain Russian oil imports in roubles. Nevertheless, as the rouble is only partially convertible and both nations have not yet approved a framework, several trades are still conducted in other currencies.

Because the meetings were confidential, all five officials declined to be identified. The foreign ministry, finance ministry, and RBI in India did not respond to demands for comment. According to the first person, the administration expects the bulk of payments to Russia to be made in dirhams in the coming months.

The administration expects the bulk of payments to Russia to be made in dirhams in the coming months

India has extensive political and security connections with Russia and has refrained from criticizing the Ukrainian war, which Moscow terms a “special military operation”. India is also a significant consumer of Russian armaments. However, Indian refiners have begun paying for the majority of their Russian oil purchased through Dubai-based dealers in dirhams rather than US dollars.

A major roadblock to international trade settlement.

The Indian rupee is partly convertible, which means it must first be changed to US dollars before being converted to any other currency, making it an unappealing reserve currency for global central banks and trade settlements. It also causes Russia hesitant to accept the Indian rupee as payment for its products.

Via the creation of vostro accounts in India, the Reserve Bank of India has made initiatives to support rupee-based trade settlements. These are international banks’ accounts with Indian lenders. Nevertheless, secondary restrictions placed by the US on Russian commerce in the context of the Russia-Ukraine war have resulted in a slow start for rupee-rouble trading.

In November, the RBI approved the opening of nine vostro accounts at the Indian Bank and UCO Bank by Russian lenders. According to reports, Russia has proposed establishing a financial association with Russian ownership in India to assist the latter in using a different clearing system than SWIFT for trade settlement.

What are nostro and vostro accounts?

A vostro account is a domestic bank account held for international banks in the latter’s native currency. It is used by domestic banks to provide international banking services to their customers who have global banking demands.

A nostro account is defined as a foreign currency account held by a banking institution in another bank. Nostros, the Latin word meaning “ours,” is widely used to ease foreign exchange and trade transactions.

Chinese Yuan Gets A Strong 'No' For India's International Trade Settlement.

Disclosure.

According to statistics from energy cargo tracker Vortexa, India received a record 1.6 million barrels per day of crude oil from Russia in February, which is more than equal to the collaborative proportion of crude oil imports from Saudi Arabia and Iraq. Developing alternative trade settlement methods has become critical because Russian oil shipments to India have increased. Therefore, making the rupee fully convertible can be an option, or otherwise dealing with an easier currency can be the possible method.

edited and proofread by nikita sharma

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