The economies of Mauritius, Sri Lanka, and Russia will be the first to replace the US dollar (USD) and other major currencies with the Indian rupee (INR) in international trade. The Reserve Bank of India (RBI) has authorised the opening of 12 vostro accounts at Indian financial institutions to facilitate rupee transactions with Russian counterparts. Six more vostro accounts have been approved, five of which will be used to trade rupees with Sri Lanka and one with Mauritius.
By eliminating the need to use the US dollar or other major currencies, the Indian rupee trade settlement mechanism makes the rupee an option for all international trade. In July, the RBI announced a system to facilitate international trade in Indian rupees. While the market determines the exchange rate between trading partners, all exports and imports will be denominated and invoiced in Indian currency.
Sri Lanka has been having a hard time for almost a year because of the bad economy and lack of dollar reserves. The rupee being recognised as legal tender will help stabilise the island nation’s currency and economy significantly.
In the meantime, Russia has been hit with a number of sanctions because of its role in the conflict in Ukraine. Therefore, Russia’s economy and international trade may greatly benefit from India’s rupee settlement mechanism.
Many countries have expressed interest in opening special rupee accounts. India and Tajikistan have begun discussions about using the mechanism, and talks have started with Cuba, Luxembourg, and Sudan as well. India is also talking with its biggest trading partners, like the United Arab Emirates and Saudi Arabia, both big oil suppliers, about how to use Indian rupees for trade.
The RBI and the Central Bank of the United Arab Emirates are finalising plans for a trade mechanism that would allow the Indian rupee to be exchanged for dirhams, and discussions with Saudi Arabia about a similar mechanism for the Saudi riyal are ongoing. Given that the UAE exports more to India than it imports, officials in both countries are debating how to best invest the Indian rupees made available by these trades.
This reiterates projections about India coming out stronger from looming economic collapses plaguing the rest of the world. This is why more brokers are starting to offer up services to Indian customers who are – as of late – rushing to buy stocks, among other assets, whilst the crypto market recovery is still pending a full recovery.