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Friday, December 22, 2023

Statement on Indian Rupee emerging as a Common Currency for Stronger Mutual Trade

As the world began the process of De-dollarisation, Indian National Rupee (INR) is emerging as the new common currency gaining traction to facilitate bilateral trade. On July 15, 2023, India signed two Memoranda of Understanding (MoU) between the Reserve Bank of India (RBI) and the Central Bank of United Arab Emirates (UAE) to establish a framework that will “promote the use of local currencies (rupee and dirham) for cross-border transactions.” Sri Lankan president Ranil Wickremesingha, who is set to visit New Delhi this week, also showed enthusiasm regarding the use of INR for bilateral trade when he said, “Sri Lanka would want to see the Indian rupee used as much as the US dollar.”

The global payments system was majorly facilitated through the SWIFT system – Society for Worldwide Interbank Financial Telecommunication, a West-led initiative to ease global trading between countries. However, after the Russia-Ukraine war, USA froze Russian assets and cut it out of the SWIFT system, just like Iran and Venezuela. This acted as the catalyst in the process of internationalisation of rupee and made possible the Indo-Russian bilateral trade. In July 2022, RBI formally introduced a mechanism to facilitate the international trade in rupees, which was earlier limited to FDI and external commercial borrowings (through ‘Masala Bonds’) only.

The joint statement released by India and France recently declared that India’s most successful payments system, UPI (Unified Payment Interface), will now be used by France to enable seamless cross border transactions. This has been splendidly done by the NPCI International Payments Limited (NIPL), the global arm of NPCI (National Payments Corporation of India). Under its “UPI Global Initiative”, other countries have also allowed UPI transactions, like Bhutan, Nepal, Oman, UAE, Malaysia and the UK. Europe is further set to expand UPI in collaboration with Worldline, a global leader in payment services, the process of which started in October, 2022.

The use of Indian rupee in cross-border transactions will mitigate the currency risk for Indian business; reduce the need for holding foreign exchange reserves; and as the use of Indian rupee becomes significant, the bargaining power of Indian business would improve, adding weight to the Indian economy which is enhancing India’s global stature. At a time when 88.3% of global foreign exchange market is accounted for by the US dollar, the fact that more and more countries are showing reliance on INR proves our credibility as a stable financial and technical powerhouse.

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