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Indian refiners have taken a noteworthy step by opting to pay for some of their oil imports from Russia in Chinese yuan instead of the traditional US dollar, according to reports in the media. This move is seen as a significant advancement in the process of de-dollarization among three major economies and reflects the growing international acceptance of the yuan.
The reports suggest that certain refiners are resorting to currencies like the yuan when banks are unwilling to settle trade in dollars. Citing an Indian government source, Reuters noted that at least two of India’s three private refiners are using the yuan to pay for some of their Russian imports.
Indian Oil Corp, the country’s largest purchaser of Russian crude oil, made headlines in June when it became the first state refiner to settle a portion of its Russian oil purchases in yuan.
Experts in China have expressed their belief that India’s adoption of the yuan for settlements will contribute to the internationalization of the Chinese currency, setting an example for other emerging economies to follow suit.
Pan Helin, the director of the Research Center for Digital Economics and Financial Innovation at Zhejiang University’s International Business School, stated that this development will boost the global influence of the yuan and increase its market share in international circulation and settlements. This move is also expected to expedite the ongoing de-dollarization efforts in China, India, and Russia.
Dong Dengxin, the director of the Finance and Securities Institute at Wuhan University of Science and Technology, echoed these sentiments, stating that the utilization of the yuan in settlement by India and Russia, both of which are BRICS members, will inspire other emerging economies and developing nations to follow suit.
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The BRICS countries have been actively working towards reducing their reliance on the US dollar in international trade. There are discussions underway to explore the possibility of introducing a common currency among BRICS nations, and these talks are expected to continue at an upcoming summit in South Africa.
According to the Society for Worldwide Interbank Financial Telecommunication, the yuan’s global share rose from 2.29 percent in April to 2.54 percent in May, making it the fifth most actively used currency. This share represents the third-highest level since tracking began in October 2010, as reported by various media outlets.
Dong Dengxin also emphasized that the reported adoption of the yuan for settlements will open up opportunities to expand trade channels between Russia and India, leading to a broader range of trading categories.
Past reports suggest that India’s imports of Russian oil reached a new high in June, surpassed the combined shipments from Saudi Arabia and Iraq. This surge in trade between the two countries, particularly in energy goods, has prompted financial institutions in India to explore the possibility of establishing a direct payment channel for transactions between Indian and Russian companies using the yuan.
Industry analysts view the payment made by India’s largest cement producer, UltraTech Cement, in yuan for a coal cargo from Russian producer SUEK, as an indication of the yuan’s increasing popularity and reliability as an alternative to the US dollar, which has often been weaponized for political purposes.
According to an insider from a financial institution, several financial entities in India are actively working on plans to enable direct cross-border yuan transactions between Indian and Russian companies. If successful, this initiative is expected to drive rapid growth in the use of the yuan and trade volume in the short term.
However, establishing direct yuan transactions between Indian and Russian companies presents a challenge, as no such channel currently exists. Therefore, innovative solutions need to be devised to facilitate seamless transactions.
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Experts highlight that the use of yuan settlements in cross-border trade between Russia and India is not only beneficial for the internationalization of the Chinese currency but also contributes to the smoothness and sustainability of trade, reducing risks for enterprises. This approach helps safeguard the supply chain and trade from potential disruptions caused by the US government’s tendency to employ the dollar as a tool for imposing sanctions on other countries for political reasons.
It is widely acknowledged that the US dollar’s dominant position in the international settlement system grants the US the power to freeze the assets of companies at any given time. Therefore, China, Russia, and other countries are actively seeking ways to mitigate these risks by developing more convenient and efficient payment methods, such as the yuan, to ensure the security of the global supply chain and facilitate international trade.
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