Reports have surfaced claiming that banks from India’s neighboring island nation have opened specialized rupee trading accounts known as Vostro accounts, days after the Central Bank of Sri Lanka (CBSL) stated that it was awaiting the Reserve Bank of India’s (RBI) approval to designate Indian Rupee (INR) as a foreign currency in Sri Lanka.
In-depth details about Sri Lanka will use the Indian rupee in international trade, and more nations hope to do the same:
The RBI had been asked by Sri Lanka to encourage and facilitate travel and trade within the SAARC area.
What does it imply?
It implies that Sri Lankan nationals can now physically hold $10,000 (INR 8,26,823). Additionally, this implies that Sri Lankans and Indians can do international business using Indian rupees rather than US dollars. Since July of this year, the Indian government has been attempting to pull countries in need of dollars into its rupee settlement process.
Vostro accounts are special rupee accounts for international transactions between designated nations.
Because establishing INR as a legal currency in Sri Lanka will offer the government much-needed cash support to help it tide over its economic crisis in the face of insufficient availability of the US dollar, Sri Lanka is eager to trade in INR.
When investors begin selling off in their home currency, the country’s economy is more likely to prevent further escalation of the balance of payments crisis with a foreign currency (in Sri Lanka’s instance, the INR).
So far, India’s central bank has authorized banks to open 12 Vostro accounts for rupee commerce with Russia. Six other accounts have also been authorized, including five for commerce with Sri Lanka and one for trade with Mauritius, according to a Reserve Bank of India document reported by the Economic Times. Tajikistan, Cuba, Luxembourg, and Sudan are also said to be discussing implementing the rupee settlement method.
The Indian Finance Ministry has also requested that the Indian Banks’ Association (IBA) and the Federation of Indian Export Organizations (FIEO) launch an awareness campaign to educate stakeholders about the rupee trade.
The Reserve Bank of India announced the new system for settling international commerce in the rupee in July. This was done not only to weaken the rupee versus the dollar but also to internationalize the Indian currency.