India and Tanzania have received approval from the Reserve Bank of India (RBI) to utilize their respective national currencies in bilateral trade settlements. This move is anticipated to decrease transaction costs and improve the effectiveness of cross-border trade, resulting in higher trade volumes and increased economic collaboration between the two nations.
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More About This Development:
To discuss the benefits of this bilateral trade mechanism that uses local currency, the Indian High Commission in Tanzania is organizing a Stakeholders Consultation Meeting on March 24th, 2023. This initiative aligns with the RBI’s goal of promoting the use of domestic currencies in cross-border transactions to decrease reliance on foreign currencies, particularly the US dollar.
Significance of the use of national currencies for trading:
- According to Binaya Pradhan, the Indian High Commissioner to Tanzania, the recent development of allowing the use of the Indian Rupee and the Tanzanian Shilling (Tsh) for settling bilateral trade is a positive development for the business community.
- The recently approved mechanism allows authorised banks in India to establish Special Rupee Vostro Accounts (SRVAs) for the correspondent banks of Tanzania.
- Tanzanian banks can request approval from authorised Indian banks to open their own Special Rupee Vostro Accounts in India, which must then be approved by the RBI. Bank of Baroda has already received approval for this mechanism for its foreign branches and subsidiaries in 18 countries, including Tanzania.
- Under this new mechanism, Indian importers will make payments in INR to the correspondent bank of the partner country, who will credit the payment to their Special Vostro account. Meanwhile, Indian exporters will be paid in INR from the balance in the correspondent bank’s designated Special Vostro account.
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