The Rupee Riyal Trade: What You Should Know

There is a common adage, that there are no permanent friends or enemies in geopolitics. The recent development in global trade pays testimony to just that. India and Saudi Arabia are discussing possible trade opportunities in Rupee, the Indian currency, and Riyal, the Saudi Arabian counterpart in the times to come. This is not a new phenomenon, as Saudi Arabia and China have earlier signed an agreement for trade in oil with the Chinese Yuan.

What does this mean?

In simple language, this sends out a strong message to the USA about the Dollar's easy replaceability. This is in line with the RBI’s ambition to de-dollarise international trade. However, this also means multiple rounds of negotiations between countries regarding the acceptability of the Rupee or their local currency. Phasing out the dollar will take decades to accomplish. This is a small accomplishment among many. 

The parties in conversation should not get deterred by the time involved, cause the profits we will get will be multiple folds in the long run. Let us look at the international scenario to back our argument. As of today, the USA has placed sanctions on Russia amidst the Russia-Ukraine war and has removed Russia from SWIFT (Society for Worldwide Interbank Financial Telecommunications). Given the difficulties it will pose for the member countries involved, it makes sense to look at trade in mutually agreed currencies other than the Dollar. This move can trigger de-dollarisation in full swing. Trading in one own’s currency can serve as a way to maneuver through these sanctions in general and maintain robust trade ties among nations. In a way we are living in an era of currency domino effect. 

Russia itself is not behind in the war of currency supremacy. They had earlier insisted on payment in Roubles for the purchase of Gas by Europe. The political implications of this move included far-sighted management of a war-like crisis and/or economic embargo faced by a country. India has experienced wars with China and an arms embargo by the US when there were wars with Pakistan. Coming back to the currency battle, it has, Ironically, brought contending parties together on the same platform. India, China, and Russia have major geopolitical issues, but are united on this front. In fact, there have been talks about making BRICS (Brazil, Russia, China, South Africa) reserve currency among its member countries. This will help ease of trade. 

Coming To the point

When we talk about India, it is well known that the Rupee is falling against the Dollar, the move to trade in Riyal can come as a relief. Our forex at $500 Bn might decline soon enough if we do not distance ourselves from it. We spent 120 Bn USD last year to purchase oil, of which 15 to 20 Bn USD was from Saudi Arabia. Sri Lanka pays testimony to what a bad Forex can do. Purchasing the same goods in Rupee will bring the declining currency some stability. Interestingly, there is also talks to implement to Indian Rupay card and UPI system to facilitate payment. 

There are also talks to implement projects in a time-bound manner, including the west coast refinery, LNG infrastructure investment, and development of petroleum refineries in India. By doing this, India can save billions of Dollars in Forex, which in turn has a cascading impact on inflation and trade. Saudi Arabia is India’s fourth largest trade partner, after the USA, China, and UAE, and this is a viable opportunity to switch currencies. This is good news for Indian exporters, as they will get more value for money, as well as the market in Saudi Arabia where they can purchase more for less.