₹ to use as foreign trade currency

 

Use of rupee in foreign trade: In order to facilitate international trade, Sri Lanka has agreed to utilize ₹. It occurs shortly after the Indian government announced it was looking into ways to include nations who are particularly short on dollars in the Indian rupee trade settlement process.

• Notably, the Indian government has been attempting to entice nations with dollar shortages to use its rupee settlement system since July of this year.
• The Indian rupee trade settlement system allows for the use of the Indian rupee in place of dollars and other major currencies in all international transactions.
• The RBI announced the creation of a system to conduct foreign trade in Indian rupees on July 11.
• While the market determines the exchange rate between the trading partners, the method will allow all exports and imports to be denominated and billed in Indian rupees.
• In order to educate stakeholders on the rupee trade, the Indian Finance Ministry has also requested that the Indian Banks’ Association (IBA) and the FIEO launch an awareness campaign.

India is trying to promote trade settlements in the rupee with not just Russia but also Sri Lanka and Mauritius. India is also in talks with several Southeast Asian, African and Latin American nations to start the rupee trade.

Neighbouring countries like Nepal, Bangladesh and Myanmar have also shown interest. Some of these countries are struggling with depleting dollar reserves, and government officials believe this opens a great opportunity for India to promote the rupee. 

The FE report, citing sources, said at least a dozen-and-a-half Vostro accounts have been opened so far to facilitate the trade in rupee with Russia, Sri Lanka and Mauritius. So more transactions are expected in the coming year.

A Vostro account is held by a bank that allows the customers to deposit money on behalf of another bank.

Trade with Russia has increased in recent months as it increased the supply of discounted crude to India. After the Ukraine war, several Western countries put sanctions on Moscow, putting off the SWIFT system. For this reason, Moscow would be interested in settling Indian trade in rupee as other modes of payments may not be available to it for the time being.

Russian banks such as Sberbank, VTB, Gazprom, BCS, MTS, Tinkoff, Soyuz, Credit Europe Bank (Russia), PSCB, Ros and JSCB have opened Vostro accounts. Six of these accounts have been opened with IndusInd Bank, and one with UCO Bank, HDFC Bank, Union Bank of India and Canara Bank. The report said that Sberbank and VTB have opened one such account with their local branches.

When using the process, importers in India must pay in rupees against the invoices for the supplies of goods or services from the foreign seller or supplier. These rupees must be credited into the Vostro account of the correspondent bank of the partner country. Similar to this, exporters of India who use this method to export products and services must be paid the export earnings in Indian rupees from the remaining balance in a specific Vostro account held by the correspondent bank of the partner nation.