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| Billions of Russian dollars 'stuck' in Indian banks. (Source: Sputnik) |
Russia's major exports, such as crude oil, gold and wheat, are typically traded globally in the US dollar - the world's reserve currency. However, Russia's financial system has been essentially "isolated" by Western sanctions, making it impossible for the country to conduct transactions in the greenback, leading to restrictions on international trade.
Bloomberg said Moscow has tried to solve the problem by selling oil to Asian countries like China and India, in their own currencies - the yuan (CNY) and rupee.
Russia's move raises concerns that the US dollar's strength could weaken internationally.
However, despite the Kremlin's efforts to de-dollarize bilateral trade with India, things have not gone smoothly.
In the past two years, Moscow has become one of the top oil suppliers to New Delhi, generating billions of dollars in revenue.
This has resulted in the accumulation of Russian Rupee assets of up to $1 billion per month in Indian banks.
However, the difficulty is that Russia cannot access this money because the Reserve Bank of India (RBI, the central bank) has issued regulations restricting the transfer of all Rupees stored in bank accounts in New Delhi to Moscow, as well as restricting the conversion of them into Rubles.
“Concerns over exchange rate stability are the main impediment behind the Indian government’s restrictions on allowing currency convertibility,” said Aditya Bhan, an expert at the Observer Research Foundation.
Price stability is the most important prerequisite for internationalization of a currency. Moreover, internationalization of the Rupee may limit the RBI's ability to manage domestic money supply and influence domestic interest rates in the current macroeconomic context."
According to Reuters news agency, India's currency conversion limit could lead to $39 billion of Russian money being "stuck" in the country.
Analysts say Russia's only option now is to use the money "stuck" in Indian banks to spend or invest in the country of a billion people.
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