More nations are becoming interested in India’s rupee trade settlement mechanism, which allows for international transactions to be settled in rupees rather than dollars or other major currencies.
The country’s central bank, the Reserve Bank of India, set up the mechanism in July.
The Indian government is looking to bring countries that are short of dollars into the mechanism. According to two sources and a government document examined by Reuters, Sudan, Tajikistan, Cuba and Luxembourg have started discussions with India about utilising the mechanism. It has already been used by Russia following the imposition of sanctions on Moscow over the Ukraine war.
The four countries have shown interest in opening special rupee accounts, called vostro accounts, but partner banks in India have not yet provided those facilities, documents showed. Opening of these accounts needs approval from the Reserve Bank of India.
Mauritius and Sri Lanka have also shown interest, and have seen their special vostro accounts approved by the RBI, documents showed.
India’s central bank has given approval to banks to open 12 vostro accounts for trade in rupees with Russia, according to the document. Six other accounts, including five for trade with Sri Lanka and one for trade with Mauritius have been authorised, the same document showed.
Queries sent to the federal finance ministry, commerce ministry and RBI remained unanswered.
Rupee settlement with Gulf nations
India continues to discuss denomination of trade in rupees with larger trading partners, including key oil suppliers Saudi Arabia and United Arab Emirates.
Details of potential rupee-dirham trade mechanism are being firmed up by the central banks of India and UAE, a second government official said, requesting anonymity. Talks with Saudi Arabia on a rupee-riyal trade mechanism also continue, the government official added.
The UAE and Saudi Arabia are talking about ways to invest Indian rupees they earn as part of these transactions, as the Gulf nation’s exports to India exceed imports from it.
“We have presented the option of investing additional rupees in Indian markets,” the official said.
As part of the rules issued earlier this year, the Indian central bank has allowed for any rupee holdings to be invested in government securities.
- Reuters, with additional editing by Vishakha Saxena