New Delhi, Oct 2 The Reserve Bank’s (RBI) measures to promote the internationalisation of the rupee, announced on Wednesday, are aimed at reducing the dominance of the US dollar in India’s global trade and boosting the position of the Indian currency.
The RBI’s permission to dealer banks to extend trade-linked loans in rupees to Bhutan, Nepal, and Sri Lanka reduces local reliance on the US dollar as an intermediary settlement currency. For a debt-ridden country like Sri Lanka, which faced severe dollar shortages during its 2022 financial crisis, rupee-denominated borrowing eases pressure on reserves. For India, it creates a captive demand base for the rupee, according to an article in India Narrative.
The article also states that there will be a need for prudent monitoring, as there is a risk of borrower nations accumulating rupee-denominated obligations beyond their capacity to repay, which can trigger tensions. Moreover, the step will succeed only if importers and exporters actually prefer rupee-denominated contracts over the old habit of dollar invoicing.
The RBI’s announcement to provide transparent reference rates not just for the US dollar, euro, yen, and sterling, but also for currencies like the Indonesian rupiah and UAE dirham, is considered strategically important.
India’s exporters often struggle with double conversions: invoicing in dollars, converting into rupees, then reconverting to a trading partner’s currency. Predictable benchmarks reduce currency conversion costs and risks, making invoicing in rupees more appealing, the article contends.
This step dovetails with India’s broader aim of making rupee invoicing routine in energy trade with the Middle East, especially given the UAE’s increasing role in oil trade settlement diversification away from the dollar.
The article highlights that allowing Special Rupee Vostro Account balances to be invested in corporate bonds and commercial papers confers the advantage of creating demand for rupee-denominated assets abroad and deepening India’s corporate bond market, which remains underdeveloped compared to China’s.
Besides, it can help to anchor Sri Lankan, Nepalese, and other regional surplus funds in India’s financial markets, tightening economic interdependence, the article points out.
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