The Indian rupee (INR) is gaining momentum as an international currency, as more countries are opting to trade in INR instead of the US dollar. This is a significant development for India’s economy, as it reduces the dependency on foreign exchange reserves, lowers transaction costs, and boosts exports.

According to the latest data from the Reserve Bank of India (RBI), 18 countries have agreed to trade in INR, and 60 special rupee vostro accounts (SRVAs) have been opened by domestic and foreign banks for this purpose. These accounts allow banks from partner countries to hold and transact in INR with Indian banks.

The process of SRVAs started last year in the month of July when the RBI issued detailed guidelines on cross-border trade transactions in INR. The SRVAs holders are allowed to invest surplus balance in Indian government securities. This facility is being provided by the RBI to help popularise the new arrangement.

The 18 countries that have agreed to trade in INR are:

• Russia
• Singapore
• Sri Lanka
• Botswana
• Fiji
• Germany
• Guyana
• Israel
• Kenya
• Malaysia
• Mauritius
• Myanmar
• New Zealand
• Oman
• Seychelles
• Tanzania
• Uganda
• United Kingdom

Among these countries, Russia has been a vocal supporter of de-dollarisation, and has expressed interest in facilitating trade in local currencies with India. India and Russia have already signed a memorandum of understanding (MoU) to use their national currencies for bilateral trade.

Another major trading partner of India, UAE, is also in talks with India to settle trade in rupee-dirham, instead of the US dollar. This would be a huge boost for India-UAE trade relations, which stood at $73 billion in FY 2022. India and UAE have also signed a free trade agreement (FTA) last year, which aims to enhance economic cooperation and market access.

The benefits of trading in INR are manifold for India. Firstly, it reduces the exposure to exchange rate fluctuations and currency risks, which can affect the profitability and competitiveness of exporters and importers. Secondly, it lowers the transaction costs for both parties, as they do not have to pay conversion fees or commissions to intermediaries. Thirdly, it increases the demand and liquidity of INR in the global market, which can strengthen its value and stability. Fourthly, it enhances India’s economic sovereignty and autonomy, as it reduces the reliance on foreign currencies and reserves.

Trading in INR is also in line with India’s vision of becoming a self-reliant and resilient economy. By promoting trade in local currency, India can leverage its domestic capabilities and resources, and create more opportunities for growth and development.

The move towards trading in INR is a welcome step for India’s economy, as it reflects its growing stature and influence in the global arena. As more countries join the bandwagon of trading in INR, India can expect to reap more benefits and advantages from its international trade relations.

However, the trade volume in INR is yet to be encouraging. A recent Bloomberg report quoting sources showed India’s push for a rupee payment mechanism is becoming futile due to the growing trade gap with Russia. The sources said Russian banks had not initiated any payments in the Indian currency yet as they do not want a pile-up of rupees. The market share of trades in INR will depend upon the strength and stability of INR, expansion of the capital market, and acceptance of INR by third countries for their trade settlements.