India rupee settlement mechanism draws interest from more nations
THE STORY CONTINUES BELOW THESE SALTWIRE VIDEOS
By Nikunj Ohri and Shivangi Acharya
(Reuters) – India’s settlement mechanism for trades in rupees, a means of using rupees instead of dollars and other major currencies for international transactions, is attracting interest from more countries.
Tajikistan, Cuba, Luxembourg and Sudan have started talking to India about using the mechanism, according to two sources and an official document verified by Reuters. It was already used by Russia after imposing sanctions on Moscow over the Ukraine war.
The Reserve Bank of India (RBI) set up the mechanism in July.
The government is trying to bring countries short of dollars into the mechanism, said a government official and an industry source aware of the development. The source declined to be named as the matter is confidential.
The four countries have shown interest in opening special rupee accounts, called Vostro accounts, but partner banks in India have not yet provided the facilities, documents showed. The opening of these accounts must be approved by the Reserve Bank of India.
Mauritius and Sri Lanka have also shown interest and approved their dedicated Vostro accounts by the RBI, documents showed.
According to the document, the Central Bank of India has given approval to banks to open 12 Vostro for trading in rupees with Russia. Six other accounts, including five for trading with Sri Lanka and one for trading with Mauritius, were authorized, the same document showed.
Inquiries to the Federal Ministry of Finance, the Ministry of Economic Affairs and RBI remained unanswered.
CONVERSATIONS WITH GULF NATIONS
India continues to hold discussions with major trading partners, including key oil suppliers Saudi Arabia and the United Arab Emirates, about denominating trade in rupees.
Details of a potential rupee-dirham trading mechanism are being finalized by the central banks of India and the United Arab Emirates, a second government official said, asking not to be identified. Talks with Saudi Arabia on a rupee-riyal trade mechanism are also continuing, the government official added.
The UAE and Saudi Arabia are discussing opportunities to invest Indian rupees they earn on these transactions as the Gulf nation’s exports to India exceed imports from India.
“We presented the option to invest additional rupees in the Indian markets,” the official said.
As part of regulations enacted earlier this year, the Indian central bank has allowed all rupee holdings to be invested in government bonds.
(Reporting by Nikunj Ohri; Editing by Bradley Perrett)
