Local currency letters of credit (L/Cs) could help India reach its ambitious target to increase bilateral trade with Russia to US$100 billion a year by 2030, according to Global Trade Research Initiative (GTRI).

The Indian think tank reckons that this target is achievable by increasing exports, a free trade agreement with India and the Eurasian Economic Union, and a focus on trade in local currencies.

Closer financial ties

GTRI is calling for closer financial ties with Russia that would facilitate L/C and other transactions between Indian and Russian banks. It is also calling for an independent entity to replace the SWIFT messaging platform from which Russia is barred.

"Local currency trading would be the best solution. To facilitate this, India needs to establish a transparent and open currency exchange", according to GTRI.

It says the exchange would provide "clear, market-determined exchange rates between local currencies like [the] Indian rupee and other currencies such as the Russian rouble, Malaysian ringgit, Thai baht, or Chinese yuan."

Reliable reference points

This would not only provide banks with a reliable reference points for issuing L/Cs but also help businesses understand currency volatility better, according to the think tank.

Meanwhile, GTRI suggests that countries with currency surpluses, including Russia with its Indian rupee surplus from oil exports to India, could exchange their surpluses for other currencies more efficiently in such a multi-currency exchange platform.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.