India-Sri Lanka Rupee trade: Start small, make steady gains and remain firm on your goals. This may sound like a bodybuilding tip, but it has come from Indian foreign trade dynamics. India’s initiative to push forward the Indian Rupee in the global market has started to bear fruit now. The de-Dollarisation has begun.
India-Sri Lanka Rupee trade
According to a report by WION, the Reserve Bank of India (RBI) is deliberating on the designation of Rupee as foreign currency in Sri Lanka. Few days ago, the Central Bank of Sri Lanka (CBSL) said that it has its mechanism in place for it. Meanwhile, banks from Sri Lanka have opened Vostro accounts. Vostro is a Latin word which means “yours”. As the name suggests, A Vostro account is an account a correspondent bank holds on behalf of another bank.
Now, Sri Lankan citizens can use Indian Rupee to buy made-in-India products. Sri Lanka desperately needed an alternative currency to save itself from economic crisis. It paid the price of too much reliance on Dollars.
As it got into debt, the Island nation realised that it did not have enough Dollars to pay for imports. The country went into a strife, which is where India and some other countries jumped in with much needed humanitarian effort. However, India’s exports to Lanka include fuel as well. We have opened petrol pumps in the crisis hit Island nation. The new India-Sri Lanka Rupee trade mechanism will make it easier for locals to pay Indian pump owners.
Indeed, that is how the demand for the Indian Rupee is going to increase in the coming future. That is how demand for every currency increases. Take for example, the American Dollar. Currently, the currency market is excessively dominated by the Dollar.
Over 60 per cent of international trade and finance is dominated by Dollar. With 40.51 per cent utility, it was the most active currency in SWIFT transactions for the year 2021. This became possible only because crude oil became new Gold in the second half of the 20th century and somehow the Petro Dollar came into action.
This is a big problem for other countries. American exporters as well as importers use the same currency. Think about it. No other country on the planet earth has this facility. China did try to break the shackles and in fact aped the Dollar. It started its Renminbi offence only when it became a net exporter of commodities. It took due care of the fact that, in case Uncle Sam is angry, China’s domestic supply is not choked.
However, Chinese currency did not find traction since it is not fully convertible on the capital account. Additionally, China artificially manipulating its currency also became a big reason for its failure.
It is not that Indian Rupee is without deficiencies. It has its fair share of problems as well. For instance, India is not a trade surplus nation, which casts a doubt about our intentions in case things go haywire. China’s problem of curbs on convertibility is true for India as well.
But Indian Rupee has one big advantage. India does not engage in currency manipulation like China. Moreover, India, being a democracy, enjoys a legitimate place in the global world order. Our financial market products like RuPay Credit Cards, UPI among others is well-acknowledged.
Countries all across the world have measured these equations and seem to have zeroed down on the belief that the Indian Rupee is more stable. Reports indicate that at least 35 countries have shown interest in India’s rupee trade mechanism. Belarus, Tajikistan, Cuba, Luxembourg and Sudan are already in talks with India.
Initially, the rupee trade mechanism was intended to attract countries dissatisfied with reckless American sanctions. However, things have changed for good in the last few months. India’s top trading partners, including the UAE and Saudi Arabia, are also interested in rupee-dirham and rupee-rial trades respectively.
Up until now, a total of 18 Vostro accounts have been approved. 12 of them are reserved for India-Russia trade, 5 for India-Sri Lanka and 1 for India-Mauritius. Given the fact that momentum is with Rupee and countries are unhappy with Dollar, number of such accounts could quickly reach to 50. We are witnessing history in the making.
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