The Reserve Bank of India (RBI) on Monday took a step towards internationalising the rupee — permitting the settlement of export and imports in the Indian currency.
With soaring oil imports from Russia, the move is seen as facilitating trade with Moscow, which has faced severe sanctions from the West for invading Ukraine.
The rupee can now be used to pay for Russian oil rather than the dollar. The demand for the US currency will also fall to shore up the rupee, which depreciated 19 paise to close at its fresh lifetime low of 79.45 on Monday amid broad-based dollar demand and foreign capital outflows.
Analysts said Iran may be another nation, which can opt for the rupee trade.
It remains to be seen if exporters and importers from other countries will want to trade in the rupee rather than the dollar or other hard currencies.
“In order to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in the rupee, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in the rupee,” it said.
Apex exporters’ body Federation of Indian Export Organisations (FIEO) said as per existing FEMA provisions, the final settlement has to be in free foreign exchange except for Nepal and Bhutan. “Now the final settlement to all countries, if approved by RBI, can be in Indian rupee,” said A. Sakthivel, president of the FIEO.
Banks will require prior approval from the foreign exchange department of the RBI to open a special rupee vostro accounts of the correspondent bank of the partner trading country.
A vostro account is an account held by a foreign bank with a domestic bank in the latter’s currency.
Indian importers will make payments in rupees which shall be credited into the special vostro account of the correspondent bank of the partner country
Indian exporters will be paid their proceeds in rupees from the balances in the designated special vostro account.
According to Ananth Narayan, associate professor at SP Jain Institute of Management and Research (SPJIMR), while the RBI’s circular allows for a more generalised internationalisation of the rupee, ``realistically, the immediate takers right now are likely countries that wish to move out of US dollar/ G7 currency settlements or fear sanctions. Russia naturally comes to mind’’.
Rupee at new low
The rupee fell 19 paise to close at its fresh lifetime low of 79.45 against the dollar.
Receding crude oil prices in the international market restricted the loss for the rupee, which posted its third straight session of decline.
At the interbank forex market, the local unit opened weak at 79.30 against the greenback and witnessed an intra-day high of 79.24 and a low of 79.50.
The dollar index, which measures the greenback’s strength against a basket of six currencies, advanced 0.56 per cent to 107.60.