The Indian Prime Minister has travelled to Russia to try to convince Vladimir Putin to accept the rupee as payment again.
Rupee and trade deficit
While Viktor Orban was touring capitals with an olive branch in his hand, the Indian Prime Minister was in Moscow to do his bit.
The 22nd annual Russia-India summit celebrated the 77th anniversary of the establishment of Indo-Russian diplomatic relations. Hugs and big smiles were the order of the day. Narendra Modi was even awarded the Order of St Andrew by his counterpart.
We will also remember this little sentence from Modi about Vladimir Putin: “My friend is a very brave man”. Is it necessary to say more to understand which camp New Delhi is in?
Mr Modi said Russia's support has helped India protect its citizens from inflation caused by soaring energy prices. Russia is crucial for India's food (fertiliser) and energy security.
Trade between the two nations increased by 66% last year and by another 20% in the first four months of the year. The two countries want to reach trade of $100 billion per year by 2030.
Almost 60% of transactions are already in national currency. However, the trade imbalance in favor of Russia is problematic. Russia's exports amount to about $60 billion, while imports are worth just $4 billion…
Since last year, Russia has become its main supplier of oil, accounting for between 30 and 40% of its imports. Unfortunately, Moscow does not know what to do with the Indian rupees. The Russians have even demanded that imports be paid for in Emirati dirhams or yuan.
Will the meeting of the two heads of state allow India to resume its purchases in rupees? That is what is being whispered.
De-dollarization
VTB Bank CEO Andrey Kostin, who was present at the negotiations, said more about the contentious issues. Asked about the possibility of deploying the RupAy and MIR credit card systems in India and Russia, the banker was frank:
“Of course, there are problems regarding sanctions, incomplete convertibility of the rupee, the range of trade and economic relations and the trade balance. But overall, I must say that the Indian side is showing a constructive attitude. […]
Issues that were previously problematic are being resolved in one way or another. However, aggressive sanctions from the West persist. We have told our Indian colleagues that we need to take a broader view. We need to develop our own international transaction system that would include the countries of the South to transact in our own national currencies.
The upcoming BRIC summit will be crucial. India has a key role to play in becoming independent from the dollar or the euro. It is quite possible, but it will probably not happen overnight. We are of course discussing these issues all the time.”
The issue of the trade balance imbalance remains thorny. Hence this summit meeting to try to smooth things over. Russia is asking in particular to be able to invest its rupee reserves in Indian high-tech projects.
Another Russian request: India's use of the International North-South Transport Corridor (INSTC) and the Northern Sea Route. These are all projects that complement the Chinese Belt and Road Initiative (BRI).
The INSTC is the flagship project that will allow India to increase its exports to Eurasia and thus reduce its trade deficit. This 7,200-kilometer-long multimodal corridor passes through Iran. It is the cornerstone of Moscow's geoeconomic reorientation towards the Asia-Pacific now that Europe has cut the bridges, or rather, the pipes.
BRICS and Bitcoin
Surprise, Vladimir Putin has just announced his desire to create a joint parliament:
Such a parliament would be an international institution whose voice would carry in the concert of nations. It could even facilitate sanctions against the West…
The BRICS summit in Kazan in October this year promises to be explosive. And speaking of sanctions, everyone is wondering whether a new international payment system will be announced.
We know that China is working on the mBridge project in tandem with the Bank for International Settlements. Saudi Arabia has just recently joined the project.
At the same time, the Chinese president visited Kazakhstan. Xi Jinping expressed his support for the country joining BRICS. In addition, the two central banks agreed to cooperate in the field of central bank digital currencies (CBDC).
Last October, China signed a similar agreement with the United Arab Emirates before immediately completing a digital yuan transaction to pay for oil imports.
The United Arab Emirates is one of the founding countries of mBridge, a blockchain developed by China. The UAE was the first to make a transaction via mBridge. This payment of 50 million dirhams ($13 million) to China was made in January.
The National Bank of Kazakhstan does not participate in mBridge, but it is an “observer member.” As are 22 other central banks, including the Fed and the ECB.
So is it the mBridge blockchain that will be this famous international payment system that will beat the dollar and the SWIFT network?
There was no need to go to such lengths. Bitcoin has been proving itself for over 15 years. A blockchain without Proof-of-Work is doomed to censorship, just like the SWIFT network. Another problem is that CBDCs remain fiat currencies that quickly lose their value.
Finally, national currencies end up being rejected in the event of a trade deficit that is too large. The world needs a universal standard. That is what bitcoin represents.
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