Use of rupee in foreign trade: In order to facilitate international trade, Sri Lanka has agreed to utilize the Indian Rupee (INR). It occurs shortly after the Indian government announced it was looking into ways to include nations who are particularly short on dollars in the Indian rupee trade settlement process.
Use of rupee in foreign trade: Sri Lanka and Russia
- The Reserve Bank of India’s (RBI) clearance is required before the Indian rupee can be designated as Sri Lanka’s official foreign currency, according to the Central Bank of Sri Lanka (CBSL).
- According to reports, banks in Sri Lanka have set up special accounts for trading in INR dubbed Special Vostro rupee accounts, or SVRA.
- Additionally, the SAARC region’s neighbouring island country has asked RBI to support and encourage trade as well as tourism.
- Sri Lanka has been dealing with a severe economic crisis and a shortage of dollars for almost a year.
- The island nation will receive much-needed liquidity support if the Indian rupee is recognised as legal tender.
- People in Sri Lanka can now hold USD 10,000 (Rs 8,26,823) in real form thanks to the establishment of Vostro accounts.
- Additionally, Sri Lankans and Indians can transact internationally without using US dollars by using Indian rupees instead.
Use of rupee in foreign trade: Key Points
- Notably, the Indian government has been attempting to entice nations with dollar shortages to use its rupee settlement system since July of this year.
- The Indian rupee trade settlement system allows for the use of the Indian rupee in place of dollars and other major currencies in all international transactions.
- The RBI announced the creation of a system to conduct foreign trade in Indian rupees on July 11.
- While the market determines the exchange rate between the trading partners, the method will allow all exports and imports to be denominated and billed in Indian rupees.
- In order to educate stakeholders on the rupee trade, the Indian Finance Ministry has also requested that the Indian Banks’ Association (IBA) and the FIEO launch an awareness campaign.
When using the process, importers in India must pay in rupees against the invoices for the supplies of goods or services from the foreign seller or supplier. These rupees must be credited into the Vostro account of the correspondent bank of the partner country. Similar to this, exporters of India who use this method to export products and services must be paid the export earnings in Indian rupees from the remaining balance in a specific Vostro account held by the correspondent bank of the partner nation.