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Comprehension Text for Nov 2020 (Winter) IIMU -NDPH-3rd year Term 2 Homework assignments
Almost overnight, Russia's $630b reserves have gone worthless (Part-2)
Mar 6, 2022, 21:09 IST
Indo-Russian trade is barely $8 billion, whereas Indo-USA trade is upward of $100 billion. So it is clear which side Indian exporters would willingly go. Something similar happened when the West (only a few countries, led by America) had imposed sanctions against Iran. Then too, most Indian banks voluntarily chose to stay away from Iran deals even though there were very big export opportunities for Indians. But India had big import dependence for oil from Iran; hence the public sector bank, UCO Bank, was practically forced to be the bank for settling deals with Iran.
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The UCO Bank set up a rupee account for Iranian government from which India’s exporters were paid rather than getting paid directly from Iran in their currency. In the present case, India is again setting up a similar mechanism for direct rupee to rouble (Russian currency) transactions so as to bypass dollar based clearing on American soil.
Since 2014, Russia has tried to move away from dollar and euro assets, and has accumulated nearly 13% of its assets in Chinese currency (renminbi) denominated assets. But there is a limit on what the Chinese can sell to Russians. Also, the renminbi is not yet a “hard currency”. So this is a wake-up call for all countries that have accumulated a huge pile of foreign exchange reserves. India too has more than $600 billion and euro assets. If you are under sanctions, when you try to encash those assets, the counterparty (American or European central banks) may choose not to honour that transaction. Then you are left holding worthless paper.
Almost overnight, Russia's $630b reserves have gone worthless (Part-2)
