India to apply rupee in trade with Russia, Iran
The Indian Central Bank has declared that it is going to apply India’s national currency in trade exchanges with states under sanctions such as Iran and Russia to facilitate transactions.
India’s Hindu newspaper reported that the Central Bank (RBI) has created a mechanism to facilitate and speed up international trade based on its own national currency.
According to the report, banks entitled to conduct the transactions should have the permission of related entities in the Indian government.
The RBI announced that it made the decision in order to promote export from India and support increasing international interest into rupee; so, there would be created a mechanism for issuance of bills, payment and settlement of exports or imports.
The selected banks are tasked with getting permissions from the RBI’s foreign exchange department prior to implementing the mechanism in Mumbai, India, the Indian Central Bank mentioned in a statement.
Mahesh K. Desai, new chairman of EEPC India, said that the mechanism is expected to facilitate trade with countries under sanctions, like Iran and Russia.
The chairman of Engineering Export Promotion Council went on to say that trade ties between Russia and India has come to a practical standstill because of sanctions imposed on Russia over the conflict in Ukraine.
"We see this as a first step towards 100% convertibility of rupee," Desai said, arguing that the new mechanism would also reduce currency fluctuation risks for importers and exporters.
The new measure would allow Indian exporters and importers to utilize special Rupee Vostro Accounts to settle trade in rupees, the RBI noted, adding that all exports and imports may be settled on the basis of rupees.
Indian exporters can make use of the mechanism and they can withdraw export revenues from banks in rupees as well.
Economic experts are of the opinion that the new mechanism would give more power to rupee in currency exchange market.
Rahul Bajoria, Chief India Economist at Barclays, said that this step can be particularly useful for neighboring countries, and also those countries willing to use the rupee as a base currency for trade diversification in their settlement rules.
Bajoria noted that economists see the move as a constructive long-term step, which can pave the way for more usage of rupee in foreign trade.
According to RBI statement, Indian exporters can receive prepayment from foreign importers in rupees.