Table of Contents
Trading in INR
3 benefits of India for trading in INR (Indian Rupee) are discussed below: –
(a) It can help India manage its foreign reserves better instead of using the US dollar. The Indian Rupee is being put to use so there’s no need to dip into reserves.
(b) It helps India protect its economic interests take the example of Russian oil. India needs Russian oil to secure its energy interests and the West wanted to block it. It wants to curb Russian oil exports. The West can do that because of its dominance in the International Financial System. Most of the international trade is done in dollars, payment gateways are controlled by the West. They can influence trade but India found a way, it bypassed these curves by using the Indian Rupee. The Russian oil bills were settled in the Indian Rupee. This Arrangement also incentivizes foreign exports because Indian exporters continue to have access to markets like Russia.
(c) The Indian Rupee is gaining wider acceptance. It is being used to settle international trade. Many benefits are not to say that there aren’t any risks. This arrangement exposes the Indian Rupee to more external shocks. Despite this, India must press on, if India wants the Indian Rupee to become a Global Currency. It must be internationalized.
Strength of a Country
Strong military power and a good economy are the two main indicators of the strength of a country in the eyes of the common people. This makes a strong passport and a strong currency of the country. The ability to travel visa-free, the option of using your country’s currency abroad are some indicators of the strength of a Nation. It invokes a sense of national pride. If you could use the Indian Rupee while traveling outside India. India’s Reserve Bank has taken the first steps in this direction. India is working to internationalize the Indian Rupee and it’s starting with business transactions. Traders are being given the option to settle transactions in Indian rupees began in December 2022.
Switch from USD to INR
Russia and Sri Lanka are among the first to make the switch from USD to INR (Indian Rupee) for bilateral trade. They settled trade transactions in the Indian Rupee since then more countries have signed up. Other countries besides Russia and Sri Lanka, are Mauritius, Malaysia, Singapore, Myanmar, Israel, and Germany. They all made arrangements to make payments in the Indian Rupee, and all of these countries have opened special accounts. They’re ready to trade in the Indian Rupee.
Vostro Account
Vostro account is a special account. Vostro is a Latin word, it means yours. A Vostro account is opened by a bank in India but it’s operated on behalf of another bank usually in another country. Suppose an entity in Russia wants to make payments in INR, it will reach out to an Indian Bank. It will ask the Indian bank to open an account and accept payments on its behalf.
Accept Payments
The Indian bank will accept payments on behalf of the Russian entity, so for anything that you get from Russia or any bill that is raised. You can deposit the payment in this account in India. You can make this payment in Indian Rupees in an Indian Bank. Meanwhile, another bank in Russia will make an entry of this deposit in its books. The money belongs to the Russian Bank. It is just being kept in the Indian Bank.
Use of Payments Receipt
Russia can use the payments receipt in Vostro account in a variety of ways. Suppose the Russian side wants to import something from India. It can use deposits in the Vostro account to make that payment. It will pay the Indian exporter in Indian rupees. It can also invest this money in government securities or Investments or special projects. it can also be used to manage Import and Export transactions. It’s like the Russian entity has its bank account in India and it does business in Indian Rupees.
We’re discussing a hypothetical scenario here Russia is just one example. Anyone who signs up to trade in the rupee and opens a Vostro account can do similar transactions. They sound complicated but they are the better option because you’re not converting currencies to make payments.
Trade in Euro
Consider the dollar of the United States or the Euro that is used by 20 out of 27 member states of the European Union. They make up what’s called the Eurozone, even the Yen of Japan to some extent. These are major economies and they all have internationalized currencies, if India wants to join this club the Indian Rupee must go Global. It should become the reserve currency for global trade
FAQ
Which 18 countries agree to trade in INR?
Countries that agree to trade in INR are Malaysia, Mauritius, Myanmar, United Kingdom, Russia, New Zealand, Sri Lanka, Oman, Seychelles, Singapore, Tanzania, Uganda, Botswana, Fiji, Germany, Guyana, Israel, and Kenya