Virendra Pandit
New Delhi: The Western sanctions against Russia after it invaded Ukraine in 2022 have pushed several countries to trade in mutually beneficial currencies to skirt the use of US dollars and bypass supply chain constraints.
With the Reserve Bank of India (RBI) allowing banks in 18 countries to trade in Indian rupees, India and Malaysia will now be able to use the Indian currency (INR) to settle trade in addition to other currencies, the Ministry of External Affairs (MEA) said on Saturday.
The move follows the central bank’s decision in July 2022 to allow international trade settlement in Indian currency.
“Trade between India and Malaysia can now be settled in Indian Rupee (INR) in addition to the current modes of settlement in other currencies,” the MEA said.
The MEA said the RBI’s initiative is aimed at facilitating the growth of trade and supporting the interests of the global trading community in the Indian rupee.
“India International Bank of Malaysia (IIBM), based in Kuala Lumpur, has operationalized this mechanism by opening a special Rupee Vostro account through its corresponding bank in India, i.e., Union Bank of India,” it said.
The Vostro accounts are used to make payments in domestic currency.
Recently, the government informed the Rajya Sabha that the RBI had permitted banks from 18 countries to open Special Vostro Rupee Accounts (SVRAs) for settling payments in Indian rupees.
Union Minister of State for Finance Bhagwat Kishanrao Karad told BJP MP Sushil Kumar Modi that the SVRAs could be set up by banks of partner countries by approaching Authorized Dealer (AD) banks in India that may get permission from the RBI after the due procedure.
The RBI had granted approval to “domestic and foreign AD Banks in 60 cases for opening SVRAs of banks from 18 nations — Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, and the United Kingdom.”
Of these countries, Russia has been vocal in using trade in local currency for the overall process of “de-dollarization”.
But India has been supporting the idea of trade in local currency mainly to boost exports. The process of SVRAs began in July 2022 when the RBI decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR.
The announcement came in the backdrop of the commodities crisis triggered by the Western sanctions against Russia after President Vladimir Putin launched the so-called “special military operation” against Ukraine on February 24, 2022.
Trade in local currencies was mooted as a solution to avoid the current wave of wartime international sanctions that are hampering supply chains and global trade flows.
Since 2022, India finalized trade pacts with partner countries like the UAE and Australia and started negotiations with others such as the UK and the European Union while making inroads for the national currency in bilateral and global trade.