India's international trade ruble settlement mechanism is difficult to make substantial progress, and foreign trade enterprises should take the initiative to deal with exchange rate market fluctuations

Recently, the Bank of India launched the rupee settlement mechanism for international trade, which takes effect immediately.
The Bank of India pointed out that the invoicing, payment and settlement of import and export goods in rupees are to promote the growth of Global trade, increase the interest of the global trade community in Indian rupees and promote India's exports.
According to this mechanism, the currency exchange rate between India and its trading partner countries can be determined by the market. Indian importers who import through this mechanism shall pay in rupees according to the overseas seller's invoice for the supply of goods or services. At the same time, Indian exporters who export goods and services through this mechanism shall obtain export proceeds in rupees from a special account designated by the correspondent bank of the partner country.
It is reported that in the first half of 2022, the West kicked Russia out of the swift system and banned Russian financial institutions from conducting dollar transactions. As a result, the amount of loans that India could not normally receive from Russian traders reached $500million in early March. The Central Bank of India began to negotiate with Russia on the conclusion of a trade agreement, which bypassed the US dollar to promote the ruble rupee trade settlement.
India's latest announcement has attracted market attention. Tanyaling, President of the China Foreign Exchange Investment Research Institute, pointed out that India needs to carefully evaluate the effectiveness of the rupee settlement mechanism.
It is difficult to make substantial progress in the rupee local currency settlement mechanism of international trade
How do you interpret the reasons and prospects for India to launch the rupee settlement mechanism?
Tanyaling: at present, they are launching the international trade settlement mechanism in local currency. In my opinion, they are more thinking about issues from the perspective of trading products, and seriously ignore the other side - the systematicness of money and finance, and lack of thinking about the settlement transactions between currencies. Furthermore, the current status of the global dollar settlement system is not well understood, and there are strong emotional factors. This is also a common phenomenon in emerging markets.
Emerging market economies may have their own rapid economic growth, but there is still a large gap in strength with developed countries.
As far as the proportion of the US dollar as a reserve currency is concerned, it accounts for about 60% of the international foreign exchange reserves, which is the largest. At present, the global trend and public opinion are biased towards de dollarization, including the theory of selling US Treasury bonds. On this occasion, people are prone to misjudgment. If the judgment of the financial cycle is too simple, the potential risks are more likely to erupt in the future.
Judging from the launch process of the rupee settlement mechanism, it may have a great relationship with the resource elements of Russia. Compared with Russia, which is a big oil supplier, India is a big oil and coal demander, and its external dependence on oil is more than 80%. At this time, if the rupee participates in Russia's de dollarization settlement, Russia's oil and coal exports to India may provide more convenience.
In fact, after the introduction of the ruble order in Russia, it has not achieved the expected effect at present. The oil transactions between the United States and Russia are settled in dollars rather than rubles, and the energy transactions between the European Union and Russia are not all rubles. Therefore, the idea, reality and implementation are quite different. Similarly, we should carefully evaluate the effectiveness of India's introduction of the rupee settlement mechanism.
When discussing the currency settlement method, everyone ignored a logic, that is, the internationalization of the local currency, the focus is not to promote the local currency to the international, but whether it is accepted by the international community and whether it is recognized by multilateral institutions.
The Indian Rupee exchange rate fluctuates greatly due to the fluctuation of the US dollar price. Once the dollar appreciates, other economies in the world will be under pressure to assume the role of a stable currency. To sum up, the current local currency settlement method is difficult to make substantive progress.
The internationalization depth of emerging market currencies is relatively insufficient
What are the similarities and differences between India's launch of emerging market currencies this time and the rupee settlement mechanism, which is relatively less internationalized, and the earlier Russian Ruble settlement order and RMB cross-border settlement?
Tanyaling: first, these are emerging market currencies, and the depth of internationalization is relatively insufficient.
Second, a currency should have the function of international settlement, and its internal financial market system and mechanism should be perfect, such as the absolute freedom of currency in and out. At present, none of the three are available, at least there is capital account control.
Third, at present, when the Federal Reserve raises interest rates, there is panic in the global market. At this time, the implementation of local currency settlement, its own system does not have the basic requirements to support the internal and external circulation, and it is not operable. On the contrary, it may add trouble to itself rather than bring advantages.
Whether it is settled in ruble or rupee, it must be promoted on the premise of the appreciation of the local currency, which will be more smooth. Imagine that the ruble will depreciate by 7% in the short term. Who dares to bet on it.
Will more countries try to reserve and settle international trade in non-U.S. currencies against the backdrop of geopolitics and pressure on their local currency exchange rates?
Tanyaling: anti globalization itself is not a rational choice, because the existing process of globalization determines that it is impossible to go global.
In the foreign trade data just released in June, although the United States is our third trading partner, its trade increased by 11% that month. China and the United States have formed a relatively fixed supply chain structure and supply-demand cycle, and it is almost impossible to change the trend. Do not use periodic phenomena to replace and resist objective trends.
Foreign trade enterprises should actively respond to exchange rate market fluctuations
Recently, some people said that the BRICs countries may establish a new reserve currency in the future. What do you think of this view?
Tanyaling: standing in the moment, this possibility is too small. How the cohesion of the BRICs countries is the premise of discussing financial cooperation.
How should China's foreign trade enterprises cope with the fluctuations in the exchange rate market?
Tanyaling: judging from the trend of this year, first, the exchange rate should be a good stage for foreign trade enterprises, because after the excessive appreciation of the RMB, it began to depreciate in a restorative way. Of course, it may not have reached the past profitability level of foreign trade enterprises. Because the RMB level has been overestimated.
Second, the rise in raw materials and maritime labor costs is superimposed on the exchange rate. At present, the risk faced by foreign trade enterprises is not only exchange rate fluctuations. Despite the correction of the exchange rate, other costs may rise. On the whole, the pressure may still be great, not to mention that foreign trade enterprises are still facing a product cycle, that is, the demand is reduced, because there is a certain cycle of natural consumption of products.
Third, China US economic and trade relations still exert pressure on foreign trade, and the United States is trying to get rid of its dependence on the global supply chain.
In general, foreign trade enterprises should consider the "risks greater than opportunities" faced by foreign trade enterprises more. Foreign trade enterprises will respond more actively to the fluctuations in the remittance market, rather than passively.