I would be using a toothbrush to remove residue, or a firmer bristle brush if it was not loose. What about just washing it in water...should get rid of the powder.
As to colour...I have seen Red, Blue, Green, Gold on Indian sword scabbards---admittedly on the replica ones which seem to be about in large quantities, but of course old ones would normally have been a bit faded over the years unless they had been kept in the dark. You would need to get the "correct" shade of colour to make it look right though. I think if I were in your shoes I would use green, as close as possible to the stuff that is already there, or maybe just a little faded as the knife is not new. If you know someone who recovers pool tables you might be able to get some faded baise which could do the trick.
Stu.
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