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The Indian Prime Minister visited Russia to try to convince Vladimir Putin to accept the rupee as payment again.
Rupee and Trade Deficit
While Viktor Orban was making the rounds of capitals with an olive branch in hand, the Indian Prime Minister was in Moscow to contribute to the effort.
The 22nd annual Russia-India summit celebrated the 77th anniversary of the establishment of Indo-Russian diplomatic relations. Embraces and big smiles were the norm. Narendra Modi was even awarded the Order of St. Andrew by his counterpart.
We will also remember this little phrase from Modi about Vladimir Putin: “My friend is a very courageous man”. Is more needed to understand which side New Delhi is on?
Mr. Modi stated that Russia’s support has allowed India to protect its citizens from the inflation caused by the spike in energy prices. Russia is indeed crucial for India’s food (fertilizer) and energy security.
Exchanges between the two nations increased by 66% last year and by an additional 20% in the first four months of the year. Both countries aim to achieve trade exchanges reaching $100 billion per year by 2030.
Nearly 60% of transactions are already conducted in national currency. However, the trade imbalance in favor of Russia poses a problem. Russia’s exports amount to about $60 billion, compared to just a small $4 billion in imports…
Since last year, Russia has become its main oil supplier, representing between 30% and 40% of its imports. Unfortunately, Moscow does not know what to do with the Indian rupees. The Russians have even asked that imports be finally paid in Emirati dirhams or yuan.
Will the meeting between the two heads of state allow India to resume its purchases in rupees? That’s the rumor.
Dedollarization
The CEO of VTB Bank Andrey Kostin, present during the negotiations, said more on the points of contention. Asked about the possibility of deploying the RupAy and MIR credit card systems in India as well as in Russia, the banker was frank:
“Of course, there are problems regarding sanctions, the incomplete convertibility of the rupee, the range of trade and economic relations, and the trade balance. But overall, I must say that the Indian side is showing a constructive attitude. […]
Questions that previously posed problems are being resolved in one way or another. However, aggressive sanctions from the West persist. We told our Indian colleagues that we need to adopt a broader vision. We need to develop our own international transaction system that would include Southern countries to conduct transactions in our own national currencies.
The next BRICS summit will be crucial. India has a key role to play in becoming independent of the dollar or the euro. It is entirely possible, but it will probably not happen in a day. We are, of course, constantly discussing these issues.”
The issue of trade balance imbalance remains thorny. Hence this summit meeting to try to smooth things over. Russia is especially asking that it be able to invest its rupee reserves in Indian high-tech projects.
Another Russian request: India’s use of the North-South International Transport Corridor (INSTC) and the Northern Sea Route. All these projects complement the Chinese Belt and Road Initiative (BRI).
The INSTC is the flagship project that will allow India to increase its exports to Eurasia and thus reduce its trade deficit. This 7,200-kilometer-long multimodal corridor passes through Iran. It is the cornerstone of Moscow’s geoeconomic reorientation towards the Asia-Pacific now that Europe has cut ties, or rather, pipelines.
BRICS and Bitcoin
Surprisingly, Vladimir Putin has just announced his intention to create a common parliament:
Such a parliament would be an international institution whose voice would carry in the concert of nations. It could even facilitate sanctions against the West…
The BRICS summit to be held in Kazan in October of this year looks explosive. And speaking of sanctions, everyone wonders if a new international payment system will be announced.
We know that China is working on the mBridge project in tandem with the Bank for International Settlements. Saudi Arabia recently joined the project.
Meanwhile, the Chinese president visited Kazakhstan. Xi Jinping expressed support for the country’s entry into BRICS. Furthermore, the two central banks agreed to cooperate in the field of central bank digital currencies (CBDC).
Last October, China signed a similar agreement with the United Arab Emirates before promptly executing a transaction in digital yuan to settle oil imports.
The United Arab Emirates is one of the founding countries of mBridge, a blockchain developed by China. The United Arab Emirates was the first to conduct a transaction via mBridge. This payment of 50 million dirhams ($13 million) to China was made in January.
The National Bank of Kazakhstan is not participating in mBridge, but it is an “observer member.” Along with 22 other central banks, including the Fed and the ECB.
So, is the mBridge blockchain the famous international payment system that will outdo the dollar and the SWIFT network?
It wasn’t necessary to go to such trouble. Bitcoin has proven its worth for more than 15 years. A blockchain without Proof-of-Work is doomed to censorship, like the SWIFT network. Another problem, CBDCs remain fiat currencies that quickly lose their value.
Finally, national currencies end up being refused in case of a too significant trade deficit. The world needs a universal standard. That’s what Bitcoin represents.
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Bitcoin, geopolitical, economic and energy journalist.
DISCLAIMER
The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.
