Trade game-changer in making? Several countries willing to start trading with India in rupee
While Bangladesh and Sri Lanka are keen us to start immediately, countries in the Gulf region are also seriously looking at the possibility, Goyal informed. At some point, more and more developed countries and countries in the Far East will also join the bandwagon, he said, adding that Singapore is already on board to some extent.
More and more countries are realising the advantages of trading in their own domestic currencies and a shift towards direct transactions between local currencies is gaining traction, Goyal said.
By avoiding the need to convert transactions into a third currency, both parties can significantly reduce transaction costs, the minister said.
The UAE was one of the first economies to accept this mechanism, and it has since gained momentum. India’s first-ever payment in rupees for crude was from the UAE.
Many countries are expressing their interest in initiating direct transactions between their local currencies and the Indian Rupee. However, implementing this process might take some time as it requires coordination between the central bankers of both nations and the acceptance of the system by importers and exporters, Goyal said.Trade using the Indian Rupee is also advantageous because the currency remains stable against most international currencies. This stability has attracted different nations to build trade relations based on rupee trade. Besides, the rupee trade mechanism has proven beneficial for countries experiencing a shortage of US dollars.India has already commenced trade in rupees with neighboring countries like Nepal and Bhutan. Additionally, the rupee has been included in Sri Lanka’s list of designated foreign currencies to facilitate trade. India’s push for using the rupee globally began with its first-ever payment in rupees for crude oil purchased from the UAE. This initiative has encouraged the world’s third-largest energy consumer to seek similar arrangements with other suppliers.
To support the use of the Indian Rupee in international trade, changes have been made to the Foreign Trade Policy (FTP). These alterations allow for trade settlement in rupees and aim to establish the INR as a global currency. In July 2022, the Reserve Bank of India (RBI) authorised Indian banks to open and maintain special rupee Vostro accounts for partner trading countries’ banks. These accounts hold the foreign banks’ rupee holdings with their Indian counterparts.
When an Indian trader needs to make a payment to a foreign trader in rupees, the amount is credited to the Vostro account. Similarly, when an Indian trader is owed payment, the amount is deducted from the Vostro account and credited to their regular account. HDFC Bank and UCO Bank are among the banks that have already opened special Vostro accounts to facilitate overseas trade in rupees. Many countries have shown interest in establishing this arrangement for local currency trade.
