India and Russia have taken a significant step in their trade relationship by deciding to bypass the US dollar and use their national payment systems, RuPay and MIR, for cross-border transactions. This move aims to make transactions between the two countries smoother and more efficient.
Meeting in Moscow: Integration of RuPay and MIR
During a recent visit to Moscow, Indian Prime Minister Narendra Modi met with Russian officials to discuss the integration of their respective payment systems. Modi confirmed India’s openness to using RuPay and MIR for transactions with Russia. This is a notable shift from his previous stance, where he had rejected the idea of de-dollarization, particularly when it involved China’s yuan.
Benefits of Using Local Currencies
The decision to use local currencies for trade between India and Russia has several benefits. One of the main advantages is the potential savings on exchange rates, which can amount to millions of dollars. By conducting transactions in their own currencies, both countries can avoid the costs associated with converting their money into US dollars.
Statements from Key Figures
Andrey Kostin, CEO of Russia’s VTB Bank, emphasized the importance of developing a settlement system that enables transactions in national currencies rather than the US dollar. During a press conference, he stated:
“We must develop our own settlement system that includes the global south enabling us to conduct transactions in our own national currencies and not the US dollar.”
Kostin acknowledged that integrating RuPay and MIR for trade settlements is a complex process, but he also highlighted its necessity for economic independence.
India’s Shifting Alliances
India has historically maintained a friendly relationship with the United States. However, recent actions indicate a shift towards de-dollarization and a closer alignment with Russia and other BRICS (Brazil, Russia, India, China, and South Africa) nations. Modi’s visit to Russia, the first in five years, underscored this new direction.
Ambitious Trade Goals
During the meeting between Modi and Russian President Vladimir Putin, the two leaders set ambitious trade targets. They aim to achieve $100 billion in trade between India and Russia by 2030. This goal reflects the strong commitment to enhancing their economic partnership.
Statements from Russian Officials
Russian Foreign Minister Sergey Lavrov confirmed Modi’s attendance at the upcoming BRICS summit. Lavrov also mentioned Modi’s interest in strengthening cooperation with G20 nations, indicating India’s strategic balancing act between different international alliances.
The Dominance of the US Dollar
Despite the efforts of BRICS countries to reduce reliance on the US dollar, it remains the world’s primary reserve currency. A study by the Atlantic Council’s GeoEconomics Center highlights that neither the euro nor the currencies of BRICS nations have significantly diminished the global dominance of the dollar.
The “Dollar Dominance Monitor” report noted that the dollar continues to dominate foreign reserve holdings, trade invoicing, and currency transactions globally. Its role as the primary global reserve currency is expected to remain secure in the near and medium term.
China’s CIPS and Global Participation
The report also mentioned China’s Cross-Border Interbank Payment System (CIPS), which saw a 78% increase in direct participants over 12 months, reaching a total of 142 direct participants and 1,394 indirect participants. This growth indicates China’s efforts to expand its financial infrastructure and reduce reliance on the dollar, although it has yet to significantly impact the global financial system.
Conclusion
India and Russia’s decision to use their national payment systems, RuPay and MIR, marks a significant step towards de-dollarization in their trade relationship. While the US dollar remains dominant globally, the move reflects a strategic shift and the desire for greater economic independence. The integration of RuPay and MIR is expected to streamline transactions and reduce costs, benefiting both nations as they aim for increased trade and stronger economic ties.
ALSO READ: Caroline Crenshaw’s Reappointment to SEC Sparks Debate
