According to a report by Russian State News Agency on October 16, Russian Deputy Prime Minister Novak revealed that India has started using the Chinese yuan to pay for part of its oil imports from Russia.

Since the outbreak of the Russia-Ukraine conflict, India has purchased large quantities of Russian oil, but energy transactions between Russia and India have been subject to restrictions in settlement.

Western sanctions have cut off Russia's access to the US dollar and euro, while India is unwilling to take risks with sanctioned currencies, leading to an ad-hoc solution based on the Indian rupee.

However, the rupee is not an international currency and cannot be freely exchanged. Russia receives the money but cannot take it out.

In particular, during the period when Sino-Indian relations cooled down two years ago, Russia could neither smoothly process trade through the yuan channel nor convert or transfer the rupees.

Russia could only helplessly watch this money remain in Indian bank accounts, effectively meaning India earns and spends the money, with no chance to bring it back home. What kind of situation is this when the economic condition is already poor, and goods are sold but the money cannot be obtained?

Russian Petroleum

It can be said that without the yuan, trade between Russia and India has been in a state of failure.

Russia sells its goods to India and should obtain stable foreign exchange income, but due to the non-convertibility of the rupee in the international market, Russian funds can only remain in Indian bank accounts.

These accounts are essentially a financial cage. The money exists on paper but cannot be transferred out or used for global settlements.

India has previously proposed that Russia use these rupees to invest locally, such as purchasing Indian government bonds, corporate bonds, or participating in Indian infrastructure projects.

But from Russia's perspective, this is like converting foreign exchange income into pre-paid vouchers, which cannot be withdrawn, and the profits earned will be locked up again.

Russian officials have repeatedly complained about this arrangement, but there are few alternatives. Although both Russia and India are pushing for local currency settlements, there are significant operational obstacles.

India does not have sufficient ruble reserves, so it can only pay for Russian energy with rupees; Russia, however, cannot use the rupees. The two countries' monetary systems are incompatible.

The ruble and the rupee are not global settlement currencies. Their financial markets are small, lack liquidity, and have almost no hedging tools. As a result, theoretically bilateral local currency trade cannot form a closed loop and must rely on third-party currencies.

Russian Currency

Previously, the third-party currency mainly used was the UAE dirham, as it is pegged to the US dollar, has a stable exchange rate, and can be settled through Dubai banks.

But after 2024, the United States strengthened financial regulations, and some UAE banks began to tighten their dealings with Russia, significantly reducing the security of the dirham channel.

Currencies such as the Turkish lira and Kazakh tenge were also tried, but they were too volatile and too small in scale to handle the pressure of energy settlements.

Eventually, the Chinese yuan became the only choice that met the three elements of stability, scale, and political safety.

For Russia, the yuan is a currency that can be spent, and Russia can use it to purchase Chinese goods from China.

Moreover, the yuan exchange rate is stable, unlike the ruble and the rupee, which fluctuate greatly. For enterprises, the financial cost and risk are controllable.

Of course, the most critical factor is that China does not participate in illegal sanctions, which means that yuan assets are the safest in terms of geopolitical security.

For Russia, the yuan is not just a payment tool, but also a financial safe haven.

Indian currency exchange rates have always been unstable

As for India, even though Russia has accumulated a large amount of rupee assets, it still does not want to invest in India.

This is because India has strict controls over capital account investments for foreign capital, especially funds from sanctioned countries, with slow approvals and strict requirements.

If Russia invests, it will be almost impossible to withdraw the investment or repatriate the funds later.

Additionally, the Indian market and Russia's industrial structure are not compatible. Russia's strengths lie in energy, minerals, and defense, while the Indian market focuses on domestic manufacturing, information services, and consumer industries. Russian companies lack local experience and suitable entry channels.

Plus, India's strategic relationship with the United States continues to strengthen, and Russia is concerned that if India and the US adjust their political positions in the future, its assets may face freezing or restrictions.

Overall, investing in India means high risk, low returns, and no possibility of repatriation. In comparison, Russia would rather use its yuan reserves to purchase Chinese goods or invest in energy cooperation projects in Central Asia and the Middle East, where the exchange channels are smooth and safer.

Therefore, as Sino-Russian relations warm up, Russia can finally gradually get out of the problem.

Original article: https://www.toutiao.com/article/7561671043761406464/

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