India urged to stabilize its currency before a yuan-rupee payment plan with China

By Chen Qingqing Source:Global Times Published: 2018/12/3 22:43:40

Experts urge India to stabilize currency, expand exports

A cargo ship berthed at the Port of Ningbo Zhoushan, East China's Zhejiang Province, which opened the first direct service to India. File photo: VCG

China may avoid using a yuan-rupee payment system in the short term as the Indian currency is neither stable nor an official reserve currency, experts said.

The South Asian country is also being urged to narrow its deficits with China by increasing exports rather than promoting the use of its currency.

China has reportedly rejected India's proposal to conduct trade in rupee-yuan terms, an idea that was discussed in an inter-ministerial meeting in October, news agency Press Trust of India reported on Sunday. An unidentified official noted that China didn't accept the proposal, without elaborating on the reason for the rejection.

The Indian government is being encouraged to promote exports in its domestic currency to narrow deficits with its trading partners such as China, the media report said.

Bilateral trade between China and India was about $84.4 billion in 2017, with imports from India reaching about $16 billion and exports from China worth around $68 billion, according to figures released by the General Administration of Customs in January.

The People's Bank of China, the country's central bank, did not respond to a query by the Global Times concerning the alleged rejection as of press time on Monday.

The Indian rupee recorded its worst performance against the US dollar following the country's currency reform at the beginning of 2018, and this was a major reason why China might have rejected India's proposal for a yuan-rupee payment system in bilateral trade, Tian Guangqiang, assistant research fellow with the National Institute of International Strategy at the Chinese Academy of Social Sciences, told the Global Times on Monday.

"Also, the rupee is not an international reserve currency. If this payment system goes ahead, China will hold a large amount of Indian rupees, which couldn't be widely used in other international transactions except in South Asia," he said.

While the proposal did not sound attractive to Chinese experts, some Indian and Chinese traders said it might facilitate trade between two major economies in Asia.

The Indian government may have thought of the idea because of the rupee's sharp decline against the US dollar, Raghavendra Arkasali, an Indian entrepreneur based in Beijing, told the Global Times on Monday.

"If I source from China, of course, I prefer to pay in Indian rupees… because of low transaction costs," he said.

Another Indian trader Charanjeet Singh Arora, who's been in the electronics business for seven years, said he studied the possibility of rupee-yuan payments for two or three years. He paid closer attention to this matter in the past two months following a drastic change in the Indian rupee's exchange rate against US dollar.

"It will save money for traders like us to have rupee-yuan deals," he told the Global Times on Monday. Rupee-yuan payments will be faster and cheaper than dollar-denominated transactions, he said.

The Indian rupee depreciated 13 percent against the US dollar since the beginning of 2018, media reported in September.

China and India have been strengthening trade ties, especially as they both face rising protectionism and want to protect free trade, Qian Feng, a research fellow at Tsinghua University's National Strategy Institute, told the Global Times on Monday.

"Using domestic currencies will help boost bilateral trade… but the conditions for rupee-yuan payments have not matured," he said.

Qian said that stabilizing its currency is a major task for India, while rupee-yuan payments will be resolved in the future.

In recent years, BRICS countries - Brazil, Russia, India, China and South Africa - have been working on local currency settlements and currency swaps, which would ease their dependence on US dollar-denominated transactions, Chinese official news website reported in August 2017.

China and India should enhance domestic currency settlements to reduce foreign exchange risks and minimize the impact of US dollar fluctuations, according to the report.

"India should also work to expand value-added exports to China such as software and healthcare products to narrow its trade deficits with China, instead of mainly focusing on currency tools," Tian added.

Newspaper headline: Yuan-rupee payment plan hits problems over volatility


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