Russia’s proposal to India to use its own financial messaging mechanism – developed as an alternative to the SWIFT global network – to help push rupee-rouble trade settlement, has been scrutinised by the RBI and found “doable” but discussions continue, sources have said.
A final decision on the matter will also take into consideration the diplomatic aspect.
“Following Prime Minister Narendra Modi’s recent meeting with Russian President Vladimir Putin in Moscow, where the two agreed to promote trade settlement in national currencies and introduce digital financial instruments into mutual settlements, there have been meetings between senior officials from RBI and some public sector banks with their counterparts in Russia on the country’s proposed alternative messaging system for banks. Discussions are still on. There is a view in RBI that the proposal is doable but talks are still on. It is a diplomatically sensitive issue so more consideration is needed,” a source tracking the matter told businessline.
Prominent Russian banks have been banned from using the SWIFT system, a network that allows financial institutions to exchange electronic messages about international transactions enabling safe payments. It is part of the West’s sanction against the country for waging a war against Ukraine in February 2022, which still continues.
“Barred from using the SWIFT system, Russia now wants its prominent trading partners, including India and other BRICS nations, to join its own alternative mechanism of transferring messages,” the source said.
Like SWIFT, Russia’s mechanism too is designed to result in uninterrupted transmission of financial messages between financial institutions of countries that latch on to the network. It could, however, take time for new entities to connect to the network.
bilateral trade up
Russia is eager that India agree to its proposal of using its own payment messaging system for banks as it can then facilitate the two countries to move to a rupee-rouble payment settlement system.
With India-Russia trade increasing to $65 billion in 2023-24 (most of it is India’s purchase of Russian oil) and the two countries eyeing $100 billion trade by 2030, the two countries are keen to explore national currency trade settlement.
“For national currency trade settlement and quick pay to be more efficient, it is important to have a new transaction facilitating mechanism,” the source said.
However, New Delhi also has to take into consideration the global mood with the Russia-Ukraine war still continuing, the source added.
India and Russia want a national currency settlement system as it would reduce their dependence on hard currencies like the US dollar. Under the mechanism, the two central banks will set a direct exchange rate between their currencies, by deciding on a reference rate, instead of pegging it against the US dollar.
“Direct settlements in national currencies will not only help in de-dollarisation but also lead to cheaper, quicker and more efficient transactions,” the source said.