How do you identify a country’s power in the current century?
Mighty Military? Strong, soaring GDP numbers?
The answer might be YES! But does that really bother the common people?
What matters for a commoner is when he gets the liberty to use his country’s currency abroad, travel visa-free etc., This is what India is trying to achieve.
The Reserve Bank of India has set its foot on a mission to internationalize Indian Rupee in recent times since the ongoing Russia-Ukraine war.
THE PROGRESS SO FAR!
The start of Russia-Ukraine war and its current course has altered the global economy to a certain extent.
The hegemony of dollar is slowly fading away. Countries are competing to internationalize their currencies for a stronghold in the global market! In this prolonged process, India is now at the spotlight as many countries come forward to trade with India through Rupees.
Since 2022, RBI has been taking steps in this direction starting with business transactions.
The shattered economies of Sri Lanka and Russia were the first in the list of countries, who opted for transactions through Rupee. The countries that followed were Mauritius, Malaysia, Singapore, Myanmar, Israel and Germany.
HOW DO COUNTRIES TRANSACT?
The business transactions between the countries obliging to an agreement occurs when countries open ‘VOSTRO’ accounts in India. This, in Latin means, ‘YOURS’!
Consider a case!
If the transaction is between India and Russia, then Russia will have to open a ‘VOSTRO’ account in any of the banks in India i.e., When a business deal like an oil purchase is done, India would transfer the corresponding amount of Indian Rupee to the VOSTRO account of Russia. This money belongs to Russia but lies within India. A bank in Russia calculates and makes accounts.
How can Russia get access to the money?
- Imports by Russia from India.
- The Import bill can be paid from the VOSTRO account of Russia
- Russia can invest in Government securities, Infrastructure investment projects etc.
HOW DOES THE MOVE BENEFIT INDIA?
1. Reduces pressure on the Forex reserves.
As countries transact in local currencies, the need for dollars in trade is lowered. The saved foreign reserves can aid in emergency situations like Balance of Payment crisis.
2. Protects India’s Economic interests.
With the example of India’s Oil purchase from Russia, We can get to know that the Indian Government carried on with Rupee-Ruble trade, bypassing the Western sanctions on Russia. From this, India had an opportunity to make its own choices based on national interest. This incentivizes foreign exports.
3. Wide acceptance of Rupee.
As many countries start using Rupee for their trade and transactions, its prominence soars and this will be a right step towards internationalizing Rupee.
Though there exists number of benefits to count, there are also potential risks involved. Internationalizing a currency will make the country more prone to external shocks.
With years ahead, for the Rupee to internationalize, it should attain the status of RESERVE CURRENCY in global trade which is not that far away.
For more articles related to ECONOMY: https://www.scrolledstories.com/category/economy
“If you can’t explain something simple, you don’t understand it well enough” – Albert Einstein.
Howdy readers!!! With strong belief in the power of words, I look forward to help you choose the correct lens to perceive world issues and embrace positivity about the future!
Very informative
I do agree with all of the concepts you have presented for your post.
They’re really convincing and will certainly work.
Nonetheless, the posts are too quick for beginners.
May just you please extend them a little from next time?
Thank you for the post.
Sure. Thank you
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