Recently Russia and Sri Lankan government has announced that they will be using Indian Rupee for most of their International Trade. This was agreed few days after the Indian Government announced that they are looking for several ways for the other countries to come up which are falling short of dollars into ambit of Indian trade settlement mechanism.
CBSL (Central bank of Sri Lanka) is awaiting the approval of RBI (Reserve Bank of India) to make Indian Rupee as Sri Lanka’s International Currency. Many Sri Lankan Banks have also opened new special accounts for trading in INR called as the “Special Vostro Rupee Account” (SVRA).
The Indian Rupee Trade Settlement Mechanism was recently launched by RBI in July 2022 where other countries can use Indian Rupee for their International Trade instead of Dollars. It was launched to improve the growth of Global Trade on exports from India and also to increase the support of trading in Indian Rupee.
What does this Trade Settlement Mechanism Means?
Whenever any country is exporting or importing any kind of goods, they need to make the payment in a foreign currency, as USD is the most reserved currency, most of the payments are done in USD. As now India has launched the Indian Rupee Settlement Mechanism, these trade can now be settled in Indian Rupee if both the countries have a Rupee Vostro account. Even earlier as well the rupee trading was allowed but there was no surplus rupee to circulate. For any currency to be accepted internationally for trade, capital flows and trade have to be liberalized too.
As Indian rupee is now open to be used for International Trade, it will help the Indian Economy to grow drastically.
Many Neighboring Islands and other countries too are interested in trading in Indian Rupee
Cuba, Sudan, Tajikistan, Luxembourg, Mauritius and many other neighboring islands have also began talking to India about the trade mechanism. This is already in use by Russian Govt. post the Ukraine war and now many other countries want to adapt the same.
The strengthening of dollar recently have made imports expensive for a lot of countries which leaves us for a need to have an alternative. These 4 countries mentioned earlier have also shown their interest in opening up the Vostro Accounts and recently IBA (Indian Bank’s Association) have been instructed by the Finance Ministry to initiate an awareness about the Vostro accounts to the required stakeholders for rupee trade.
Trade Facilitation Increased with larger Trade Partners
Currently RBI has given permission to op[en up 12 Vostro accounts to have International Trade in Indian Rupee, slowly the same will be offered to others too. Cuban Bank has also approached for opening the account. Any country who needs to trade in Indian Rupee needs to accept payment in Vostro Account only and who needs to settle trade with the other country, they should also have the Vostro Account in-order to have the settlement done.
India is continuing to have discussions of denomination of trade with major Oil Suppliers like United Arab Emirates and Saudi Arabia as Gulf’ nations export to India exceeds the Imports. In any case, having more and more countries interested in the mechanism is a sign of India Rupee growth.