-1

Bilateral currency exchange like in between India or China with Russia at this moment is risky because the currencies would be pegged to Euro when the Rouble is losing value more than the former two's currencies. I want to explain this by a simple example. Russia and one of these two countries exchange currencies worth 100 million euros. Today on the date of exchange, the other country can spend it all and get commodities worth all for the day. But tomorrow as the Rouble falls, they would get less commodities of the same money. It is bad for the country unless Russia promises it will have no inflation for the month. Means tomorrow I will get the oil barrel at the same value as in today paid in Rouble.

Before arriving at a deal of bilateral currency exchange with Russia, what checklist should the countries (like India or China) have? Answers backed by real life examples are great but I equally welcome theoretical exampless like the ones I highlighted i.e spending the whole money on the same date.

Improve this question
3
  • Friendly countries like China or India, acording to the new russian law, don´t have to pay in roubles, so they seem to be wrong examples.
    – convert
    Commented Apr 24, 2022 at 11:53
  • @convert I don't know what you want to say (provide references) but India and Russia did have talks about Rupee Ruble exchange. It is halted as far as I know. See here - aljazeera.com/economy/2022/3/31/… There are other articles as well, just search "rupee rouble exchange". What you implied is unclear to me. Could you send me a reference? Please take into consideration my link.
    – Gary 2
    Commented Apr 24, 2022 at 14:44
  • I wanted to say, this countries don´t have to pay roubles, they can use other curencies. If your question was about risk of inflation, this risk is not limited just to rouble, so there are defenetly solutions how to avoid such risks.
    – convert
    Commented Apr 24, 2022 at 14:50

1 Answer 1

Reset to default
2

What you are talking about is a normal currency risk. One might sign a contract or loan in USD or EUR, only to find that the value of the local currency changes when (re)payments come due.

One possible option is to buy certain derivatives on the financial market. Think of them as insurance even if the details differ -- one pays the premium, and part of the exchange rate losses will be covered. This assumes there are people willing to bet on the foreign currency in question, but that's usually just a question of prices. Hedging in a high-risk scenario will be expensive.

But there is another risk in dealing with Russia today. A company, bank, or country might find itself banned from doing business in the US, or Europe. And it might even find that people it trades with will be banned from doing business in the US. If the US or EU were to enact such secondary sanctions, companies in China or India would have to make the choice if they want to break ties with Russia or with the US or EU.

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .