‘Rupee may find traction in neighbourhood before going international’
NEW DELHI : India’s plans to internationalize the domestic currency are likely to find traction in its immediate neighbourhood in the first instance, as it works its way through other emerging economies, Exim Bank deputy managing director N Ramesh said. This is because of the absence of a market exchange mechanism for rupee trade in these countries. “Recently, rupee trade was enabled between ICICI bank and Bangladeshi banks.
Once people (exporters) start feeling more comfortable with dealing with Bangladeshi banks, this will gather steam," he told Mint. Since July, Bangladesh has begun to settle trade within India in rupees as it attempts to cut its reliance on the dollar. The Bangladeshi Central Bank has permitted three lenders—Sonali Bank, Eastern Bank and State Bank of India-Bangladesh—to open Vostro accounts with Indian banks. A Vostro account is a bank account held by a domestic bank on behalf of a foreign bank.
The foreign bank can use its Vostro account to conduct transactions, including forex settlements, cross-border payments and investments in the domestic market. Ramesh said that while the rupee will be a great currency to settle international trade, it is not freely available in most of India’s trading partners, including in many emerging African economies, which do not have hard currencies of their own. These countries also lack a proper market exchange mechanism to settle trade in rupee, he said.
“Even South Africa, one of the economically stronger African countries, may not have a direct exchange mechanism for rupees. So, there will be some initial reluctance from importers to use rupees," he said. “Meanwhile, Indian exporters should start offering the rupee (as a settlement currency) more prominently.
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