There has been tremendous pressure on Indian Rupee (INR) in the international market off late. It caused significant depreciation in value in comparison with most bankable currency at the moment United States dollar (breaching the somewhat emotional barrier of Rs. 80 to a USD). This is due to increased dependence on imports and pull back of investments by certain categories of foreign investors from India.
With this backdrop, with the intent to ease pressure on INR at global level and to strengthen INR value, the Reserve Bank of India (RBI) has incepted a new provision permitting international trade settlement in INR which could boost interest in INR as a trading means as an alternative to currencies like dollar, euro, pound etc.,
To facilitate the rolling of this ruling, RBI is on course to develop a dedicated financial system to enable international payments for imports and exports in INR.
The underlying goal is to encourage global trading community to process their payments in INR at global level. Interestingly, it is anticipated that success of international trade settlements in INR could save $30-36 billion in hard currency on annual basis for India.
This mode of using a nation’s currency to make payments for imports and exports at international level is instrumental in handling depreciating pressure on such currency at global level. International trade in INR with partnered countries could strengthen INR by curbing outflow of dollars under the context of global trade especially imports.
To reap the benefits of such trading in INR, authorized Indian Banks need to open special vostro Accounts of the partner trading country’s banks.
Russia is the key business partner for India to push for use of INR as mode of currency for payments with respect to exports or imports.
India’s trade with with Russia is projected around $36 billion on an annual basis.
This could create a monetary magic of curbing outflow of dollars to a tune of $ 36 billion and provide healthy demand for INR and Indian bonds at global trade.
Key to internationalization of INR as a global trade currency, is expansion of base of trading currencies. As of now, global trading will take place in terms of dollar, euro, pound and renminbi with dollar charting the top as global trading currency.
It is a key moment for Rupee to make a mark as a global trading currency and this new international trade settlement via rupee could be a defining moment for Indian currency to go forward and cut down depreciation value.
It is hoped RBI efforts will certainly strengthen Rupee value and encourage global trading partners to make global trade settlements in INR boosting prospects of INR as a global currency.
Source : The Economic Times
