Yuan dilemma in Russia trade

With rupee deals yet to take off, Russian buyers prefer to pay in yuan, but this may strengthen Chinese currency

- Dilasha Seth & Ravi Dutta Mishra

With the Reserve Bank of India's rupee settlement mechanism still in its early days, Russian buyers are offering payments to Indian exporters in yuan.

Indian exporters have flagged the issue with India's commerce ministry, stating that acceptance of yuan payments will further strengthen the Chinese currency, running counter to the government's objective of internationalizing the Indian rupee.

Some exporters have already accepted payments in yuan in the backdrop of Russia selling oil to China and accepting yuan payments.  Merchandise trade between Russia and China touched a record $190 billion in 2022, up more than 34% from 2021, data released by Chinese customs showed. Exporters say that most banks are still waiting for standard operating procedures (SOP) from the RBI with regard to the rupee settlement mechanism to take it forward, thereby slowing down the initiative. Besides, banks are apprehensive and reluctant to push the Rupee payment mechanism due to uncertainty and perceived risks. Some banks are still in the process of completing the formalities for a special vostro account with their counterparts.

"Russian buyers prefer payments in euro or Chinese yuan. It seems that Russia has sold oil to China in yuan, and the money may be being used for importing from other countries, including India," said Ajay Sahai, director general of Federation of Indian Export Organisations.