Interest from central banks for rupee trade: RBI deputy guv T Rabi Sankar

There is a lot of interest from central banks around the world and governments for INR trade but volumes have not seen a sharp spike as yet, T Rabi Sankar, deputy governor, Reserve Bank of India (RBI), said on Thursday in the post-monetary policy briefing with the media.

“Other central banks, governments are taking note of this (trade in INR) and are trying to find out more and explore opportunities as well,” Sankar said.

“Volumes are not picking up, but I think there are teething issues that need to be worked out. So, the number of countries from which interest is coming is gradually increasing and the number of banks with whom accounts are opened are also gradually going up. The number of overseas banks opening those accounts are also gradually increasing. The initial process is on and it is encouraging. This is our long-term objective and we have to build towards that. Some transactions have taken place,” he added.

The stakeholders on either side are getting adjusted to it, said RBI Governor Shaktikanta Das. “It’s a completely new paradigm for stakeholders. It is something we expect to improve steadily,” he said.

In July last year, the RBI, while allowing banks in India to open special Vostro for INR trade, said the move was aimed at promoting growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in INR.

Banks have to take prior approval before such transactions and the exchange rate between the currencies of the two trading partner countries should be market-determined, the RBI said.

The talk around internationalisation of rupee has gathered pace at a time when there is a global rush of investment towards the US dollar, the world’s reserve currency, has led to sharp depreciation in the rupee.

Broadly, the central bank is focusing on increasing the use of INR in cross-border transactions, involving promoting rupee for import and export trade and then other current account transactions followed by its use in capital account transactions.

The internationalisation of rupee will mitigate currency risk for Indian businesses, reduce the need for holding foreign exchange reserves, reduce dependence on foreign currency, make India less vulnerable to external shocks, and increase the bargaining power of Indian businesses.