India's currency rupee is set to get used in international trade with some countries, after India's Central Bank approved Banks to open five vostro accounts for trade with Sri Lanka using the rupee. The trading under the system will take place through the Indian rupee trade settlement mechanism.
This mechanism allows using Indian rupees instead of dollars and other major currencies for international transactions, such as a mechanism is mostly used to trade with countries which are under U.S sanctions. Therefore, cannot trade in dollars but in this case of Sri Lanka, India aims to promote its exports and facilitate Imports using this mechanism.
According to an official document, The Reserve Bank of India has given approval to Banks to open 12 vostro accounts for trade in rupees with Russia. The same document showed that six other accounts including five for trade with Sri Lanka and one for trade with Mauritius have also been authorized. Those vostro accounts hold Indian rupee on behalf of a partner Bank in another country.
When an Indian Trader exports, the amount will be credited in the Vostro account. All the transactions will happen in Indian Rupee. With this move India has joined a list of few countries that maintain their currency as an international trading medium. Banks in the United Kingdom or the United States often hold divorce through account. On behalf of foreign Bank. China too during talks with Arab countries in Saudi Arabia initiated to hold transactions using the Chinese Yuan.
Now it's India's turn to bring rupee on a global level. The Indian Central bank's decision to open up five Vostro’s accounts in Sri Lanka will surely open up Pathways for international transactions to be done in Indian rupees instead of the US dollar. For Sri Lanka where much of this year where the island nation has been struggling with a lack of U.S dollars, this might look as a possible and a fruitful alternative in entering into international transactions in the coming financial year.
