Russia's proposal to India to use its financial messaging mechanism

04-09-2024

Russia has proposed using its own financial messaging system, an alternative to SWIFT, to facilitate rupee-rouble trade settlements with India.
The Reserve Bank of India (RBI) has found the proposal "doable" but ongoing discussions are still in progress. Diplomatic considerations are also influencing the decision.

Key points

Diplomatic Context: This development follows a recent meeting between Indian Prime Minister Narendra Modi and Russian President Vladimir Putin in Moscow. Both leaders agreed to promote trade settlement in national currencies and introduce digital financial instruments.
Current Discussions: Meetings have occurred between senior RBI officials, public sector banks, and Russian counterparts regarding the proposed alternative messaging system.
SWIFT Ban: Prominent Russian banks are barred from using SWIFT due to Western sanctions imposed in response to Russia's ongoing war with Ukraine, which began in February 2022.
Russia's Request: With SWIFT access denied, Russia is seeking to involve major trading partners, including India and other BRICS nations, in its own messaging system to facilitate international transactions.
System Functionality: Russia's messaging system aims to ensure uninterrupted financial message transmission between network participants, similar to SWIFT. However, onboarding new entities may take time.
Trade Statistics: India-Russia trade reached $65 billion in 2023-24, primarily driven by Indian purchases of Russian oil. The two countries aim for $100 billion in trade by 2030.
Currency Settlement Goals: Both nations are interested in a national currency settlement system to reduce dependence on hard currencies like the US dollar. This would involve direct exchange rates between the rupee and rouble rather than pegging to the US dollar.

Potential Benefits: Direct settlements in national currencies could reduce reliance on the dollar, potentially lead to cheaper, quicker, and more efficient transactions.