![]() The first was the rising trade deficit as imports increased rapidly as the Indian economy began to recover from the pandemic-induced downturn. Two factors caused the currency to depreciate. The government extended the scope of trade settlement in rupees on account of the steep depreciation of the currency in the second half of 2022. These arrangements were endorsed by the Foreign Trade Policy 2023 that allowed export proceeds realised in rupees to avail of the benefits and incentives in fulfilment of export obligations. ![]() Moreover, for settling trade transactions with any country, the authorised dealer (AD) bank in India was allowed to open Special Rupee Vostro Accounts (SVRAs) of the correspondent bank(s) of the partner trading country. In July 2022, the RBI issued a circular allowing trade settlement in rupees. With India increasing its import dependence on the discounted oil being offered by Russia, the realistic option for the government was to revert back to the Soviet era rupee-rouble trade arrangement. The action was an important component of the economic sanctions the United States and the other western nations imposed on Russia. The trigger was the removal of seven Russian banks from Swift, the global financial artery that allows smooth transfer of funds across borders. The issue of using the rupee for trade settlement was mainstreamed following Russia’s invasion of Ukraine last year. ![]() The report had argued that “greater internationalisation of the INR can lower transaction costs of cross-border trade and investment operations by mitigating exchange rate risk”. The Reserve Bank of India in its 2021 Report on Currency and Finance touched upon this issue, expressing confidence that the “emergence of INR (Indian Rupee) as an international currency appears inevitable”. Internationalisation of the rupee is an issue that has been in discussion for the past few years.
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