New Delhi: The Reserve Bank in its latest circular has asked banks to make additional arrangements for export and import transactions in Indian rupees in view of the growing interest of the global trading community in the domestic currency.
“In order to promote the growth of global trade with emphasis on exports from India and to support the growing interest of the global trading community in INR, it has been decided to introduce an additional mechanism for invoicing, payment and settlement of export/import Before implementing this mechanism in Indian Rupee, AD banks would require prior approval from the Foreign Exchange Department reserve Bank of IndiaCentral Office at Mumbai,” RBI had said in a notification dated July 11, 2022.
Pradeep Multani, President, PHD Chamber of Commerce and Industryin an exclusive discussion with Reema Sharma of Zee MediaShared his views on RBI’s measures for international trade settlement in Rupee.
“At a critical juncture when the rupee is at its weakest, reserve Bank of India The new mechanism to settle international trade in Indian currency is an important step towards internationalization of the rupee in the long run. Moreover, currency internationalization is a gradual process, and RBI appears to have taken its first major step in this direction,” Multani said.
Multani said RBI’s action comes when the Indian rupee hits a new low against the dollar almost every day after Russia’s invasion of Ukraine. Following Russia’s attack on Ukraine, several countries imposed sanctions on Moscow, limiting Moscow’s ability to finance the war. The US has closed Russia’s access to the dollar, prompting Indian companies to take advantage of low Russian commodity prices to consider alternative modes of payment for imports.
“Internationalization of the rupee lowers the transaction costs of cross-border trade and investment operations by reducing exchange rate risk, but it also makes both exchange rate stability and domestically-oriented monetary policy more difficult, unless large and Not backed by deep domestic financial markets. Able to absorb external shocks effectively. This move towards settling international trade in rupees could help the rupee’s share in global transactions. Globally, rupee demand increases. The increase will reduce the demand for the dollar in the long run. This will eventually reduce massively – massive depreciation pressure on the rupee and help preserve foreign exchange reserves and also reduce the currency risk of the rupee,” Multani said. it is said.
The Chairman of PHDCCI expressed confidence that if this mechanism is implemented on a large scale in the long run, it will result in internationalization of rupee or adoption of full capital account convertibility.
“A capital account records the flow of capital between two countries by way of investments and loans. A fully convertible capital account means that there is no limit to the amount of rupees that can be used in foreign exchange to buy assets abroad. can be converted,” he said.
Describing the decision to allow international trade in national currencies as a milestone event, he said, “The implementation of these measures will take time, and the benefits will be most felt in the years to come.”