The Reserve Bank of India (RBI) move to allow settlement of international trade in rupees is gaining momentum, Governor Shaktikanta Das said, adding that he expects real transactions under this mechanism to accelerate fast.
“I see a lot of traction (in rupee trade settlement). Going forward, the kind of disruption due to the (Russia-Ukraine) war which have been experienced all over, I think countries are looking at alternative modes of payment,” Das said at the annual banking conference organised jointly by the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Indian Banks' Association (IBA) held on November 2 in Mumbai.
The RBI had, on July 11, announced the setting up of a mechanism to settle global trade in rupees. Under the mechanism, all exports and imports may be denominated and invoiced in the Indian currency, with the exchange rate between the trading partner countries to be determined by the market.
To settle these trade transactions, authorised Indian banks have to open Special Rupee Vostro Accounts of correspondent banks of the partner trading country.
The central bank’s move, which it said, was to promote growth of global trade and to support increasing global interest in the rupee, came amid increasing pressure on the Indian currency in the wake of Russia’s invasion of Ukraine in late February.
Moneycontrol had reported on October 20, citing a senior government official, that UCO Bank and YES Bank had partnered with "a few Russian banks" to facilitate trade settlement in Indian rupee.
Speaking on the rupee’s exchange rate, Das said that the currency’s recent depreciation against the dollar needs to be looked at in a granular manner.
The rupee has gradually depreciated this year. Aggressive policy tightening by the US Federal Reserve has strengthened the appeal of the US dollar, prompting investors to shun risky assets in emerging markets.
Fundamental factors that drive the exchange rate have moved distinctly in favour of India since 2013, the central banker said, adding that the rupee should be allowed to find its market level.
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