India (Commonwealth Union)_ A currency is often referred to as international if it is widely recognized as a means of exchange for international trade. According to experts, the use of the rupee as an international currency will likely lower India’s trade deficit and boost the rupee on the world market. Many countries are showing interest in India’s rupee trade settlement system, which uses rupees in place of dollars and other major currencies for international transactions. India is also discussing with a few nations to start trade in the rupee in an effort to internationalize the rupee, a long-term goal.
According to sources, the government seeks to incorporate dollar-short countries into the process. The first countries to employ the Indian rupee trade settlement system were dollar-strapped Sri Lanka and sanctions-hit Russia. Additionally, Tajikistan, Cuba, Luxembourg and Sudan have also started discussions with India about implementing the system. After the imposition of sanctions on Moscow as a result of the Ukraine conflict, Russia has been following this strategy. However, the ultimate objective is to internationalize the currency.
The above four nations showed interest in creating special rupee accounts known as vostro accounts, which are yet to be authorized by partner banks in India. These accounts can only be opened with the consent of the Reserve Bank of India. Additionally, Mauritius and Sri Lanka have also expressed interest, and their unique vostro accounts have been approved by the RBI. Furthermore, India is also in discussion with the middle-east countries, including Saudi Arabia and the UAE, to initiate rupee trade with them.
According to reports, India’s central bank has authorized banks to launch 12 vostro accounts for trading in rupees with Russia. In addition, six additional accounts, including five for commerce with Sri Lanka and one for trade with Mauritius, have also been approved. This also implies that Sri Lankans, Mauritians and Indians can now do overseas transactions using Indian rupees instead of US dollars. Recent reports indicate that Sri Lankan banks have also launched special rupee trading accounts known as vostro accounts.
According to banking and trade sources, around 30 to35 nations, including countries from Asia, Scandinavia and Africa, have shown interest in learning more about the new rupee trading system for future implementation. The Asian nations interested in rupee trading are Sri Lanka, Bangladesh, Nepal and Myanmar. These nations have been experiencing a severe shortage of dollar reserves. As part of an effort to internationalize the rupee currency, Indian banks are also examining the possibility of launching rupee trading with Bangladesh and African nations such as Egypt.
The rupee’s international trade would protect the external sector from fluctuations in the foreign exchange market. In the previous fiscal year, India purchased commodities worth USD 3,520.83 million from Egypt, USD 1,004.24 million from Algeria and USD 2,725.08 million from Angola. According to data released by the trade ministry, Bangladesh’s imports from the neighboring nation amounted to USD 1, 977,93 million in the previous year. At present, rupee trading agreements exist with Russia, Mauritius and Sri Lanka via the Special Rupee Vostro Account (SRVA). Moreover, Indian banks have already established SRVA with the banks of these three countries to effectively initiate the rupee trading arrangement.
Accordingly, SBI Mauritius Ltd. and People’s Bank of Sri Lanka have recently established an SRVA with State Bank of India (SBI). Additionally, Bank of Ceylon also created an account with its Indian affiliate in Chennai. Union Bank of India has created a special rupee account for Ros Bank Russia, while Indian Bank in Chennai has done the same for Sri Lankan banks, including NDB Bank and Seylan Bank in Colombo. As part of its aim to promote bilateral transactions through SVRAs and internationalize domestic payment modalities, the finance ministry has requested stakeholders at a recent review conference to incorporate more nations into this mechanism.
India is encouraging rupee trade following the Russia-Ukraine conflict and the imposition of Western sanctions. According to RBI, “Indian importers undertaking imports through this mechanism shall make payment in INR (Indian Rupee), which shall be credited into the special vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller/supplier.”
