Grammar of commerce in a new age of geopolitics
This is due to a number of factors, including:
- The US and its allies have imposed sanctions on Russia, which have made it difficult for Russian businesses to access dollars. This has led to a growing demand for alternative currencies, such as the rupee.
- India is a major importer of oil from Russia, and the use of the rupee as a settlement currency would help to reduce the impact of sanctions on India's economy.
- The rupee is a relatively stable currency, which makes it an attractive option for businesses that are looking to avoid currency risk.
In December 2022, India and Russia settled their first trade transaction in rupees. This was for the export of 45,000 tonnes of wheat from India to Russia.
The use of the rupee for this transaction was seen as a major breakthrough, and it is expected that more trade between India and Russia will be settled in rupees in the future.
The use of the rupee for international payments is still in its early stages, but it has the potential to grow significantly in the coming years.
The Russia-Ukraine war has highlighted the need for alternative currencies, and the rupee is well-positioned to benefit from this trend.
2. Benefits of paying international payments by Indian rupees
- The Reserve Bank of India (RBI) has allowed the international settlement of trade in Indian Rupees (INR) for export and import of goods and services.
- This move is aimed at promoting the use of INR in international trade and reducing India's dependence on the US dollar.
- There are several benefits to using INR for international payments.
- It can help to reduce currency risk for Indian businesses. When businesses invoice in INR, they are not exposed to fluctuations in the value of the US dollar. This can help to protect their margins and make them more competitive in the global market.
- Using INR for international payments can help to reduce the cost of doing business for Indian businesses.
- When businesses invoice in INR, they do not have to pay foreign exchange (FX) fees. This can save them a significant amount of money, especially if they are frequently making international payments.
- Using INR for international payments can help to boost India's exports. When businesses invoice in INR, they make it easier for foreign buyers to pay for their goods and services. This can help to increase demand for Indian exports and boost the Indian economy.
In July 2022, the Reserve Bank of India (RBI) allowed the opening of special rupee vostro accounts in India by banks from Russia. This was a significant development, as it would allow for the settlement of trade between India and Russia in rupees.
A vostro account is a bank account that a bank holds for a foreign bank in its own currency. In this case, the Indian banks would hold the vostro accounts in rupees for the Russian banks. This would allow Indian exporters to be paid in rupees by Russian importers, and it would also allow Russian exporters to be paid in rupees by Indian importers.
Here are some of the bilateral agreements that India has signed with other countries for international payments using Indian rupees:
- Russia: In December 2022, India and Russia signed a bilateral agreement to settle trade in rupees. This was seen as a major breakthrough, as it was the first time that India had signed such an agreement with a major economy. The agreement is expected to boost trade between India and Russia, and it could also pave the way for other countries to use the rupee for international payments.
- Sri Lanka: India and Sri Lanka have had a long-standing agreement to settle trade in rupees. This agreement was further strengthened in 2022, when the two countries signed a new agreement to facilitate the use of the rupee for trade and investment. The new agreement is expected to help to boost trade and investment between India and Sri Lanka, and it could also help to stabilize the Sri Lankan economy.
- Mauritius: India and Mauritius have had a currency swap agreement since 2003. This agreement allows the two countries to exchange rupees and Mauritian rupees in times of need. The currency swap agreement has been used several times in the past, and it has helped to stabilize the economies of both countries.
- Bangladesh: India and Bangladesh have had a bilateral agreement to settle trade in rupees since 2015. This agreement has helped to boost trade between the two countries, and it is expected to continue to do so in the coming years.
- Tajikistan: India and Tajikistan signed a bilateral agreement to settle trade in rupees in 2022. This agreement is expected to boost trade between the two countries, and it could also help to diversify India's trade partners.
- Cuba: India and Cuba signed a bilateral agreement to settle trade in rupees in 2022. This agreement is expected to boost trade between the two countries, and it could also help to improve relations between the two countries.
- Luxembourg: India and Luxembourg signed a bilateral agreement to settle trade in rupees in 2022. This agreement is expected to boost trade between the two countries, and it could also help to attract more investment from Luxembourg to India.
- Sudan: India and Sudan signed a bilateral agreement to settle trade in rupees in 2022. This agreement is expected to boost trade between the two countries, and it could also help to improve relations between the two countries.
The Reserve Bank of India (RBI) is also in talks with other countries, such as Iran and Turkey, about signing bilateral agreements to settle trade in rupees. The RBI is also working to make the rupee more widely accepted as a settlement currency in international trade
5. Conclusion
The use of INR for international payments is still in its early stages, but it has the potential to be a major boost for the Indian economy. By reducing currency risk, lowering the cost of doing business, and boosting exports, the use of INR for international payments can help to make India a more attractive destination for foreign investment and trade.
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Practice Questions 1. Analyze the efforts made by India to promote the use of the Indian Rupee for international payments, including bilateral currency swap agreements and trade partnerships. 2. Discuss the potential benefits and challenges faced in reducing dependence on major international currencies. |
