RBI aims to de-dollarize global trade and Indian economy
NEW DELHI: The RBI aims to de-dollarize global trade and the Indian economy, Motilal Oswal Financial Services said in a report.
In another move aimed at supporting the currency, the RBI on Monday allowed international trade settlement in INR.
“In order to promote the growth of global trade with a focus on exports from India and to support the growing interest of the global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment and settlement of exports and imports in INR,” reads the press release issued by the RBI.
While this seems like a welcome move, we believe it is a long-term process and is likely to unfold fully over decades.
Implementing this process will require careful deliberations with trading partners. The success of this measure will depend on the number of them who agree to trade the INR.
It is possible that if India requests settlement of its imports in INR, the trading partner will request settlement of its imports in their local currency, indicating that the RBI, as well as other central banks, will need to hold their reserves. currency exchange in many countries. currencies. If so, it could further increase volatility and swings in the forex market, according to the report.
Foreign exchange reserves held with the RBI consist of four components: Foreign Currency Assets (FCA), Gold, Special Drawing Rights (SDRs), and Reserve Tranche Position (RTP) with the International Monetary Fund ( IMF).
On average, 93% of total foreign exchange reserves constitute FCA. The latter is maintained with the RBI as a multi-currency wallet comprising major currencies (such as US Dollar, Euro, British Pound and Japanese Yen) and is valued in US Dollars.
The move may also contribute to reducing the effectiveness of US sanctions recently imposed on Russia due to its invasion of Ukraine, or sanctions imposed even otherwise. If INR is to play an international role, it must be more freely determined.