The Reserve Bank of India recently sent a circular to BRICS and other countries allowing direct settlements in rupees. The settlements will be facilitated via special Vostro accounts, allowing foreign businesses to directly purchase Indian goods in the INR. In addition, the RBI directed State-run banks to enable business transactions without prior approval, but compulsorily requires the KYC norms.

The Managing Editor at Khaleej Times, Issac John, wrote in a recent piece citing a report from the RBI that 85% of India’s cross-border transactions were settled in the US dollar. That gives India an open window of 10% to 15% of the balance transactions to be settled in the rupees. John wrote that if India manages to fill in the void with BRICS, allowing 10-15% of trade to be settled in the rupees, it would result in an inflow of funds worth $100 billion in the local currency.

“Roughly 85% of these transactions (international trade) still settled in dollars. Even if 10-15% of trade shifts into rupees, it could amount to more than $100 billion in annual flows, giving the rupee a stronger global footprint,” he wrote. Indicating that India must push BRICS to fill in the void via the special Vostro account transactions.

Also Read: Wall Street Reacts To BRICS Currency

India Must Side With BRICS To Internationalize the Rupee

Ajay Sahai, Director General of the Federation of Indian Export Organizations, said that the world is open to multi-currency system. India must push through and internationalize the rupee, similar to China’s efforts towards globalizing the Chinese yuan. The key to achieving the goal is to incentivize BRICS members to use the rupees for trade. “The world is seeing the emergence of a multi-polar trade system. By internationalizing the rupee, India is positioning itself to benefit from shifting supply chains. While reducing transaction costs for exporters and importers who have long been exposed to dollar volatility.”