Promoting international trade in rupee to help reduce currency volatility: Survey

New Delhi: Promoting international trade in the domestic currency will help in protecting the rupee from volatility and reduce cost of doing business in the global markets, Economic Survey said on Tuesday.

The survey suggested that it could assist Indian exporters in getting advance payments in rupee from overseas clients and in the longer term promote the domestic currency as an international currency once the rupee settlement mechanism gains traction.

In July 2022, the Reserve Bank of India issued a circular permitting an additional arrangement for invoicing, payment, and settlement of exports/imports in Indian rupees (INR) to promote the growth of global trade with emphasis on exports from India and to support the increasing interest in the global trading community in rupee as an international currency.

The framework involves invoicing of exports and imports in rupee, market-determined exchange rates between the currencies of the trading partner countries, and settlement through special rupee vostro accounts opened with authorised dealer banks in India.

International settlement in rupee acquires significance against the backdrop of the US Federal Reserve aggressively hiking the policy rates and its hawkish stand.

“The framework could largely reduce the net demand for foreign exchange, the US dollar in particular, for the settlement of current account related trade flows. Further, the use of INR in cross-border trade is expected to mitigate currency risk for Indian businesses,” the survey said. Following the Russia-Ukraine war and the sanctions imposed by the West, India has been trying to promote rupee trade.

Protection from currency volatility not only reduces the cost of doing business but also enables better business growth, improving the chances for Indian businesses to grow

globally.