G20: After UAE, India in talks with Indonesia over rupee trade settlement, UPI linkage

India has been pushing the use of the rupee globally over the last one year, with the RBI setting up a mechanism to settle international trade in rupees in July 2022.

Indian authorities are in talks with their Indonesian counterparts to settle cross-border transactions in local currencies.

According to a source aware of developments, India and Indonesia are also talking about linking their fast payment systems. This follows the signing of two Memorandums of Understanding between India and the United Arab Emirates on July 15 to set up a framework to use their respective local currencies to settle bilateral transactions and to link their fast payment systems.

"Like UAE, there are talks going on with Indonesia on something similar: real-time settlement and trading in local currencies," a source aware of developments said on July 16.

"Talks are going on. It will get done soon," the source added.

Ministerial-level talks between the two countries took place on July 16 in Gandhinagar ahead of the third meeting of G20 Finance Ministers and Central Bank Governors, with Finance Minister Nirmala Sitharaman and her Indonesia counterpart Sri Mulyani Indrawati announcing the launch of an Economic and Financial Dialogue between the two countries.

In her remarks, Sri Mulyani Indrawati said the two finance ministers discussed how they could strengthen their bilateral co-operation.

"We also discussed any possibility of co-operation on digital technology, payments systems under the central bank, and using more local currency (for trade)," the Indonesian finance minister said in a joint statement with Sitharaman.

Over the last year, Indian authorities have tried to push the use of the rupee globally, with the RBI announcing the setting up of a mechanism to settle global trade in rupees in July 2022. Early use of this system was seemingly for the purchase of discounted oil from sanction-hit Russia following its invasion of Ukraine in February 2022.

However, the mechanism has not taken off, with reports emerging that negotiations over the settlement of bilateral trade in rupees between India and Russia had been suspended after Russia had accumulated billions of rupees in Indian banks which it could not use.

Instead, India continues to use US dollars to pay for the majority of its oil imports from Russia with only a small portion being paid in a mix of currencies, including dirhams and the Chinese Yuan, Moneycontrol reported on July 14 quoting a government source.