As we are aware, more countries are looking to replace dollars for international trade since Russia’s military invasion of Ukraine in July last year. Meantime India, Asia's third-largest economy is working hard to make the Indian Rupee a global trade currency. Currently, the U.S. dollar is the world's global currency and the USD has been the dominant international currency for many decades. However, after the Russia-Ukraine war, many countries are beginning to explore alternatives to the dollar for trade purposes.

India’s efforts to internationalize the rupee are not intended to challenge the supremacy of the US dollar- T Rabi Sankar, Deputy Governor of the Reserve Bank of India (RBI).

RBI pushing hard for Indian rupee’s globalization: What is Vostro Account?

The Reserve Bank of India has allowed banks from 18 countries to open special Rupee Vostro Accounts (SRVAs) to facilitate international trade in INR. It’s simple with this, Indian importers can make payments for imports in Indian Rupees instead of currencies like Dollars and Euros.

The 18 countries are: Fiji, Botswana, Guyana, Germany, Kenya, Israel, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda and the United Kingdom.

“Indian importers undertaking imports through this mechanism shall make payment in INR (Indian Rupee), which shall be credited into the special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller/supplier,” the RBI said.

International Settlement of Trade in Indian Rupee

In July 2022, RBI announced the mechanism to settle overseas trade in rupees. The mechanism implies that the rupee can be used as a reserve currency for global trade. The settlement system allows for the use of the Indian rupee in place of dollars and other major currencies in all international transactions. As per the latest reports, India is trying to push the rupee settlement of the international trade agenda with foreign countries during the G20 meetings.

Recent developments following the introduction of the “International Settlement of Trade in Indian Rupee” system:

• India is one of Tanzania’s biggest trading partners. India and Tanzania have reached an agreement that to establish trade in their own currencies, the Tanzanian Shilling, and the Indian Rupee.

• As per the latest reports, Egypt has just offered to purchase rice from India in Indian Rupee. If the deal to settle trade in the Indian rupee between India and Egypt goes through, Egypt would join 18 countries.

• India and the UAE have initiated talks to establish payments through a rupee dirham mechanism. Both countries also signed a free trade agreement (FTA) in May last year. “Discussions with India, one the largest trading partners of the Gulf country, on settling bilateral trade in rupee is in the early stage” - Dr Thani bin Ahmed Al Zeyoudi, UAE’s Minister for Foreign Trade.

• India has been already exploring a rupee trade settlement mechanism with Russia since Russia already dumped the dollar trade. India is still hopeful of a rupee trade with Russia because 20 Russian banks, including Gazprom, Rosbank, Tinkoff Bank and Credit Bank of Moscow, have opened rupee Vostro accounts with authorised dealer banks in India.

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