Deeper trade ties will help internationalise the rupee, Pg13

Key Highlights:

• Recent measures aim to promote rupee invoicing and settlement in foreign trade, reducing reliance on hard currencies.
• RBI now permits banks to lend in Indian rupees to individuals and banks in Bhutan, Nepal, and Sri Lanka for cross-border trade.
• India-Russia bilateral trade reached $72 billion in 2024, but invoicing predominantly uses US dollars.
• RBI has established Local Currency Settlement System (LCSS) arrangements with countries like UAE, Indonesia, Mauritius, and Maldives.
• UPI has been linked with payment platforms in the UAE and Singapore, and is expanding into Europe.
• India aims for a $30 trillion economy by 2047 and $1 trillion in merchandise exports by 2030, necessitating deeper trade and payment connections.

Detailed Insights:

• Geopolitical shifts have increased the use of local currencies for international transactions; the International Finance Corporation has committed over $30 billion in local currencies between 2015 and 2024.
• Despite high bilateral trade value between India and Russia, the trade is dominated by primary sector goods invoiced in US dollars, indicating a need for intra-industry trade.
• Federation of Indian Export Organisations should create awareness among exporters regarding trade settlement in rupees and partner countries' currencies.
• Linking India’s Structured Financial Messaging System (SFMS) with partner countries' messaging systems, like the UAE, can facilitate safer and faster settlements, reducing dependence on SWIFT.
• Multilateralising the Local Currency Settlement System during India's upcoming BRICS Presidency would be a significant policy decision, aligning with similar initiatives by ASEAN central banks.
• Collaboration with other countries should extend beyond enabling UPI to assisting them in building their own domestic real-time payment systems using the UPI framework.

Key Concepts Involved:

• Rupee Internationalization: Promoting the use of the Indian Rupee in cross-border transactions to reduce dependence on major global currencies.
• Local Currency Settlement System (LCSS): An arrangement between countries to use their local currencies for trade, reducing the need for third-party currencies like the US dollar.
• UPI (Unified Payments Interface): A real-time payment system that facilitates instant fund transfers between bank accounts via mobile platforms.