India To Restrain Foreign Trade Settlement In Chinese Yuan: Reuters

According to government officials, India, which has emerged as a top buyer of Russian oil as well as discounted coal, would prefer the use of United Arab Emirates dirhams to settle trade

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India has asked banks and traders to avoid using Chinese yuan to pay for Russian imports because of long-running political differences with its neighbour, according to0 a Reuters report citing three government officials involved in policy making and two banking sources.

"India, which has emerged as a top buyer of Russian oil as well as discounted coal, would prefer the use of United Arab Emirates dirhams to settle trade," three government officials said in a joint statement as per the report.

The report further noted that one official directly involved in the matter said that India is "not comfortable" with foreign trade settlement in yuan, but settlement in "dirham is okay." A second official said the settlement in yuan is not possible until there is an improvement in relations between India and China. The officials, who didn't wish to be named due to the private nature of these discussions, didn't indicate any economic reasons behind India's reluctance to accept the yuan settlement.

As per earlier reports, last year India's biggest cement producer UltraTech Cement used Chinese yuan for a cargo of Russian coal, which raised some concerns among officials as relationship between India and China has deteriorated after deadly border clashes in 2020 in Ladakh's Galwan Valley. In the backdrop of this issue, the second official has said that the government reviewed the situation with officials of the central bank and bank executives, following the UltraTech deal.

Moreover, two banking officials, aware of the matter, said the Reserve Bank of India (RBI) is not keen on foreign trade settlement in yuan, and confirmed that the government has discouraged them from using the currency. They also said Russia was keen on yuan settlement as it helps them in purchases of goods from China.

The Indian rupee has to be converted to US dollars before being converted to another currency. This partial convertibility makes it an unattractive currency for settling international trade and being used as a reserve currency for global central banks. Due to this, Russia is reluctant to accept payments in Indian rupees, the report added.

Indian refiners had last month started paying for Russian oil in UAE dirhams instead of US dollars via Dubai-based traders, according to Reuters.

Teena Jose

News Desk Reporter with Entrepreneur India

Teena is a post graduate in financial journalism. She has an avid interest in content creation, digital media and fashion.

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