18/04/2023
Internationalisation of Indian Rupee:
There are many achievements of current Indian government in last few years and key for cross border trade is internationalisation of Indian currency.
During second half of 2022, RBI came up with a guideline for doing International trades in Indian Rupee. This move from RBI can soon increase Indian Rupee as Global Accepted Currency and can lead to international trade settlements in Indian Rupee. This reduces the demand for foreign currencies and aims to minimize exchange rate risks. It can also arrest the slide in the value of the INR against the US Dollar. But most importantly, the move is expected to reduce the pressure on India’s foreign exchange reserves. Let’s take example of crude import from Russia. It has increased exponentially after Russia – Ukraine war started last year. This helps India to save billions in dollar (approximately 30 billion US dollars) if Russian imports, till recent dates from beginning of war, are paid in Indian Rupees. Even the partial settlement in Indian Rupee, there is significant reduction in the dollar outflows. International trades in Indian Currency are expected to gradually contribute to the global acceptance of the currency
One of the major advantage of trading in Indian Rupees will reduce currency conversion cost. This may reduce marginally the price of imported goods in India. Once trading in Indian Rupee with a country is agreed and all formalities are completed by governments, then there is no dependence on US Dollar with trading country. Small businessmen and traders can able to export and import with that country in Indian Rupees.
As on date eighteen countries have agreed to trade settlement in Indian Rupee and discussions are ongoing with 50+ countries. Basically, if someone wants to import something from Country A, he can pay to the Country A in Indian Rupees. Also, if someone wants to export a product to Country A, he can receive in Indian Rupees. Once large countries start trading with India using Indian Rupees, and then INR can replace US Dollar to trade when these agreed countries trade themselves.
Many countries are facing difficulties in mobilising the US dollar and it is affecting their trade prospects with acute shortage of foreign exchange reserve in US Dollar or other valued international currencies. The international trade settlements in INR will ease trading with countries facing shortage of the American dollar. Dollar-strapped Sri Lanka and sanctions-hit Russia can make best use of internationalisation of Indian Rupee.
Initially, International trade settlement in Indian Rupee only makes sense for those countries who have trade deficit with India. But countries like China which imports less from India than they export to India, may not immediately agree for the trading in Indian Rupee.
The Internationalisation of Indian Rupee is a great milestone in international trade. A well thought step in cross border trade. This achievement also illustrates the cohesive working RBI with different ministries and various institutes.
Blog By : Sanjeev Hiremath ( Dharwad)
