Indian rupee is now a tool for cross-border trade

On Monday, the Reserve Bank of India (RBI) issued permission to use the Indian rupee for payments in export and import transactions “in order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR.” Among other things, this may serve to facilitate bilateral trade with Russia cut off from settlements in US dollars and thus making easier rough diamond supplies to India.
RBI said that authorized dealer banks will have to require prior approval for such operations from its Foreign Exchange Department. Following this decision, all exports and imports under the arrangement may be denominated and invoiced in rupees, while the exchange rate between the currencies of the two trading partner countries is to be determined by the market.
According to RBI, Indian importers undertaking imports through this mechanism will make payments in INR to 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 or supplier, while Indian exporters, undertaking exports of goods and services through this mechanism, will be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.
The Economic Times news daily commenting the RBI move writes, “To be sure, India’s widening trade gap has also caused the rupee to lately slide to lifetime lows against the US dollar, exacerbating the threat of imported inflation in a country that relies on overseas shipments for meeting nearly four-fifths of its annual motor-fuel demand. A greater global trade share for the rupee will help the central bank preserve its foreign exchange stockpile, dealers said.”
As per the Economic Times, a Mumbai-based former foreign banker, Joydeep Sen said that “international trade settlement in INR, be it with Russia or any other country, will be another frontier in our independence in foreign policy. India is rightfully resisting the vested interests of the US and Europe with regard to our foreign policy and trade.”