Rupees, Rubles, and Cryptocurrencies

Posted by Written by Op-ed by Paul Goncharoff Reading Time: 3 minutes

Trade between Russia and India has been increasing, and not just by single digits. In 2022, India displaced Europe as the main buyer of offshore oil from Russia. India increased its imports of Russian oil by 16x, making up a third of all deliveries to the country. India began buying Russian oil for UAE dirhams and rubles. Purchases of Russian oil allowed Moscow and New Delhi to quickly overcome the US$30 billion bilateral trade target that Russian President Vladimir Putin and Indian Prime Minister Narendra Modi previously agreed to reach only by 2025. 

This has led to a trade imbalance wherein India imports vastly more high-value energy from Russia than it balances by exporting to Russia. The total amount of this trade disbalance is, by world standards, not too large; in dollar terms, about US$2 billion. The irritating fly in the ointment is that none of these trades can use the dollar. This is mostly due to Western dollar sanctions against Russia and partly to reduce India’s risks of secondary sanctions, thus further underpinning the broader international trend towards de-dollarizing foreign trade.

Ruble/rupee trading initially involved the creation of vostro accounts within Indian banks, with which transactions for the supply of Indian goods abroad and vice versa could be settled. The resultant system is a bit cumbersome; the opening of each such account must be accompanied by approval from Indian regulators, and the accumulated balances in the accounts can only be used for obtaining goods and services in the country or investing in government bonds in India.

The principle was worked out in the past with cases concerning Iran-India trade and is now similarly applied between India and Russia. The large difference between exports and imports has resulted in Russian companies collecting a significant amount of rupees. The figures can be seen in the general statistics of Russia’s balance of payments, where almost the entire positive balance over several months this year was due to trade in “non-traditional” currencies, which includes the rupee. Due to various restrictions, it is very difficult to use the rupee in international trade with third countries, and India is in no hurry to allow full, unrestricted convertibility of its currency.

India’s position is not difficult to understand; convertibility adds risks to the country’s financial system, which is not yet fully secured from external shocks or geopolitical pressures. Additional challenges arise from the fact that India has a trade deficit with many of its trading partners. In the 2021/22 financial year, the country’s GDP grew by 9.1 percent, and in 2022/23 by 7.2 percent. In terms of growth rates, India has already overtaken the gradually slowing China, although in terms of total GDP, it is about five times smaller. In terms of global economic growth, India is the third-most important country after China and the United States. In some industries (pharmaceuticals, IT, metallurgy, and agriculture), India has a leading position in the world market.

Russia has become the second-largest supplier of goods to India. The volume of exports in the first quarter amounted to US$15.5 billion. The Indian government has defined investment bond opportunities for these excess Russian-owned rupees within the many states of India, all geared to upgrading and expanding capabilities from machine building through to high technologies and even agriculture.

As the rupee is not a freely convertible currency, Russians are actively looking at ways to withdraw some of their funds from this country. Initially, Russian oil companies found one innovative way to do this, which is now being repeated by others. Their rupees are being exchanged in India on local exchanges by buying stablecoins, such as USDT, USDC, and DAI. This ensures the rupees remain comfortably in India. In India today, transactions in cryptocurrencies are still possible for parties from Russia, although in some cases they encountered increased commissions at the rupee conversion to stablecoin(s) side. The stablecoins are exchanged via receivers in the UAE and made usable for further exchange, be it dirham, rubles, or others as needed.

However, if this develops in the future, it is a clear signal that the inroads that cryptocurrencies and the decentralized blockchain are making have very real-world applications that are practical, unhindered, and trade friendly. What the trade picture will be when each of the BRICS+ nations complete testing and launch their respective sovereign digital currencies and establish effective cross-chain exchange protocols, is anyone’s guess, but it is not very far off. I, for one, see this prospect as a global game changer, and at the foundation for the rebirth of free trade.