A few days after stating that it was awaiting the Reserve Bank of India’s (RBI) clearance to designate the Indian Rupee (INR) as a foreign currency in Sri Lanka, reports have surfaced claiming that banks from India’s neighbouring island country had created special rupee trading accounts. In order to facilitate and promote commerce and tourism within the SAARC area, Sri Lanka has asked the RBI.
What does that imply?
Now, Sri Lankan individuals are able to physically own $10,000 (INR 8,26,823). The usage of Indian rupees rather than US dollars in cross-border transactions is now possible between Sri Lankans and Indians as well. The Indian government has been attempting to entice nations lacking in dollars to use its rupee settlement system since July of this year. Vostro accounts are particular rupee accounts used for cross-border transactions between certain nations.
Why is Sri Lanka so eager to trade INR?
This is due to the fact that Sri Lanka will benefit from much-needed liquidity support if INR is recognised as a legal tender, helping it to weather its current economic crisis in the face of insufficient US dollar availability. When investors start selling their investments in home currency, the economy of the country is more likely to be able to stop the crisis from getting worse by having access to a foreign currency (in Sri Lanka’s case, the INR).
India’s efforts to internationalise the rupee?
The Indian central bank has thus far authorised banks to open 12 Vostro for the exchange of rupees with Russia. A Reserve Bank of India document quoted by the Economic Times revealed that six more accounts, including five for trade with Sri Lanka and one for commerce with Mauritius, had been authorised. According to reports, discussions regarding implementing the rupee settlement system are still ongoing with nations including Tajikistan, Cuba, Luxembourg, and Sudan.
The Federation of Indian Export Organizations (FIEO) and the Indian Banks’ Association (IBA) have also been requested by the Indian Finance Ministry to launch an awareness campaign to educate stakeholders about the rupee trade. The new system for rupee-based trade settlement was announced by the Reserve Bank of India in July. The rupee’s value relative to the dollar was intended to decline, but so was the Indian rupee’s internationalisation.
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