By Anthony Marcus, for Eurasia Business News – July 11, 2022

The Reserve Bank of India, which performs the functions of the Central Bank of the country, announced the introduction of a mechanism for international trade settlements in rupees. Before implementing this mechanism, banks must obtain prior approval from the Foreign Exchange Department of the Central Bank of India.

“In order to promote the growth of world trade with a focus on exports from India and support the growing interest of the world trading community in rupees, it was decided to introduce an additional procedure for billing, payment and settlement of export/import in rupees,” the Indian Reserve Bank said in a statement.

Thus, all export and import transactions under the agreement can be denominated and invoiced in rupees. The exchange rate between the currencies of the two trading partner countries can be determined by the market. Settlements on trade transactions in accordance with the agreement must be carried out in Indian rupees in accordance with a certain procedure.

Indian importers importing through the new mechanism must make payment in Indian rupees, which will be credited to a special correspondent account of the partner country on invoices for the supply of goods or services from a foreign seller or supplier.

Indian exporters exporting goods will be paid in rupees from the balances in a special account of the correspondent bank.

India has been studying since February ways to set up a rupee payment mechanism for trade with Russia to mitigate the blow to New Delhi from Western sanctions imposed on Russia after the start of its military operation in Ukraine.

Indian officials feared that vital fertilizer supplies from Russia could have been halted as sanctions intensify, threatening India’s vast agricultural sector.

Russia’s exports to India amounted to $6.9 billion in 2021, mainly mineral oils, fertilizers and rough diamonds, while India exported $3.33 billion worth of goods to Russia in 2021, mainly pharmaceuticals, tea and coffee. Russia and Belarus typically account for nearly a third of India’s total potash imports. It would not be possible to replace them amid a surge in fertilizer prices to a record high,

Now New Delhi want to reduce the part of dollars in its trade settlements, as the country want to increase its Russian oil imports.

Read also : How will Russia respond to Western sanctions ?

Such mechanisms are often used by countries to protect themselves from sanctions. India also used such measures with Iran, after Tehran was targeted by Western sanctions for its nuclear weapons program. The program was introduced in 2012 and has worked well for several years.

This strategic move by India was taken as other BRICS Member States such as Russia and China want to to create a new reserve currency.

Russian President Vladimir Putin said on June 22 that a new reserve currency is being developed within the BRICS group and will be based on a basket of currencies from the group’s member countries: Brazil, Russia, India, China and South Africa. All these countries are gold producers.

In the third quarter of 2021, India’s central bank increased its gold reserve by 40.12 tonnes. In the fourth quarter of 2021, India was the biggest buyer of gold, adding 10.26 tons to its reserves (+ 77.46 tons over the year 2021). India’s gold reserves increased by 78 tonnes over the full year 2021, putting it on track for its highest annual level of purchases since 2009. India currently has 754 tonnes of gold in the reserves of its central bank (fourth quarter 2021 figures).

Read also : How to invest in gold

This monetary policy is directed against the US dollar, whose dominance in the world economy has been declining inexorably over the last twenty years, against the euro, the yuan or the ruble. Russia and China, political, energy and economic allies, want to free themselves from the United States on the international scene.

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