Settling in dollars, yuan or roubles: what an importer should choose

The contract currency affects more than the exchange rate. It determines which banks the payment will go through, how many times the money will have to be converted and who will bear the currency risk. Below are the main options for a Russian company.

Price currency and payment currency

In a contract, these are two different concepts. The price currency shows what the value of the goods is measured in. The payment currency shows what the money actually goes to the supplier in. They may match or they may not: for example, the price is in dollars, but payment is in yuan at the rate on the payment date.

This structure gives flexibility. If the route in one currency closes, you will not have to re-sign the contract. The key thing is that the contract states the conversion rate: whose rate and on what date.

If the contract names one currency and the supplier asks to be paid in another, do not pay without an amendment. The beneficiary’s bank will check the payment against the documents, and your currency control bank will see a discrepancy between the contract and the actual payment.

The dollar and the euro

The dollar is still the most widely used currency in world trade, and many suppliers quote prices in it out of habit. But payments in dollars and euros have a particular feature: they go through correspondent banks with accounts in the USA or the eurozone. These banks check payments connected with Russia especially strictly.

In practice, this means:

• there are fewer routes, and they change more often;
• the risk of a delay or a return is higher;
• the supplier’s bank may have questions for the supplier;
• the cost of the payment includes more links in the chain and more fixed charges.

Dollar payments are possible, but the route for them has to be selected especially carefully.

The picture is similar for the euro. For EU countries, the EU’s own restrictions on transactions with Russian companies are added to this. So a euro payment to an EU country and a euro payment to a third country are tasks of different complexity, and they have different routes.

The yuan

The yuan has become the main currency for trade with China. A yuan payment usually does not go through American or European banks, and within China it goes through the national payment systems. For a Chinese supplier, it is an ordinary payment in its own currency.

There are nuances here too. The yuan can be onshore (CNY, inside China) or offshore (CNH, outside China, for example in Hong Kong). The rates are close but not equal. The beneficiary’s bank in China still checks the sender and the deal. And if the supplier is not from China, the yuan may require one more currency conversion on its side, and it will build that into the price.

If a Chinese supplier has issued an invoice in dollars, offer it yuan. Many Chinese exporters find this convenient: the proceeds arrive straight away in the national currency, with no exchange on their side. For you, it is usually a shorter route.

The rouble

Settling in roubles seems the simplest option for an importer: no currency risk, no conversion on your side. But the risk does not disappear: it passes to the supplier. That is why not everyone accepts roubles, and not always.

What settling in roubles requires:

• the supplier must have a rouble account with a Russian bank or with a foreign bank that has a correspondent account in roubles;
• the supplier decides for itself how and where to exchange the roubles, and often builds this into the price;
• such settlements are more common with EAEU countries and with partners that have expenses in Russia.

For a supplier from outside the CIS, a rouble price means that the currency risk is now its own. It usually adds a buffer for rate fluctuations to the price. So the rouble price may turn out higher than the dollar price converted at the current rate. Compare the options as a whole.

A rouble contract with a non-resident is still subject to currency control. Rouble transactions between a resident and a non-resident also count as currency transactions under Federal Law No. 173-FZ, and the contract is registered under the same rules as a foreign currency contract.

Other currencies

The UAE dirham, the Turkish lira, the Indian rupee and other national currencies are used when the supplier is in that country or when the payment route passes through it. Each extra conversion costs money. A chain from roubles to dirhams and then to dollars may turn out more expensive than a direct payment, even if each fee is small on its own. Such cross-currency transactions are worth calculating as a whole.

How to choose the currency

Answer a few questions:

• In which currency does the supplier prefer to receive the money, and what is it willing to put in the contract?
• Is there a working route in this currency to the supplier’s bank right now?
• How many conversions will there be along the way, and who pays for them?
• Who bears the currency risk, and how can it be limited?
• What happens if the route closes: does the contract allow the payment currency to be changed?

The answer almost always depends on the specific pair: the supplier’s country and its bank. The same currency may work well in one direction and not go through in another.

How we select the currency and route

Agents in the VEDmost pool have different routes and currencies. For each payment we look at which currency the supplier is willing to receive and which agent has this route working now. We fix the rate and fee in the payment order before the roubles are debited, and the execution term is set in the agency agreement. If a route in the required currency cannot be put together right now, we will say so before the roubles are transferred. More on the Route selection and Foreign currency contract payments pages.