Many Countries to use Indian rupees for international trade!

Days after, the CBSL (Central Bank of Sri Lanka) said that it was awaiting the Reserve Bank of India's (RBI) approval to designate Indian Rupee (INR) as a foreign currency in Sri Lanka.

Sri Lanka had requested the RBI to facilitate and promote trade and tourism in the SAARC region.

Since July this year, the Indian government has sought to bring nations short of dollars into its rupee settlement system. Currently, Sri Lankan citizens can hold $10,000 (INR 8,26,823) in physical form. For international transactions, Sri Lankans and Indians can use Indian rupees instead of US dollars.

Special rupee accounts for international transactions between designated countries are called Vostro accounts.

Since Sri Lanka lacks adequate access to the US dollar, the introduction of INR as a legal currency would provide much-needed liquidity support to help it tide over its economic crisis.

With a foreign currency (in Sri Lanka's case, the INR), the country's economy is more likely to prevent further intensifying the balance of payments crisis when the investors begin selling off in domestic currency.

So far, India's central bank has approved banks to open 12 Vostro accounts for trade in rupees with Russia. 6 other accounts, including 5 for trade with Sri Lanka and 1 for trade with Mauritius, have also been authorized, an RBI document cited by Economic Times showed. Nations such as Luxembourg, Cuba, Tajikistan, and Sudan are reportedly in talks about using the rupee settlement mechanism.

India's finance ministry has also asked the IBA (Indian Banks' Association) and the FIEO (Federation of Indian Export Organisations) to begin an awareness campaign to sensitize stakeholders about the rupee trade.

The RBI in July had notified the new mechanism for settling international trade in the rupee. This was aimed at reducing the rupee against the dollar and internationalizing the Indian currency.