India launches internationalization of the rupee

India launches internationalization of the rupee
India launches internationalization of the rupee


7:00 a.m. ▪
5
min reading ▪ by
Nicholas T.

India intends to connect around 20 countries to its payments network over the next five years.

Asian dedollarization

The United Arab Emirates and India (both BRICS members) are among the nations quickest to purge the dollar from their trade. In July 2023, Narendra Modī and Sheikh Mohamed bin Zayed Al Nahyan signed an agreement providing for the settlement of transactions in their respective currencies, the rupee and the dirham.

The two nations maintain very strong cultural and commercial relations. India is the second largest trading partner of the UAE and the UAE is the third largest trading partner of India. Their bilateral trade stood at $84 billion in 2023, compared to $73 billion a year earlier.

The transaction mechanism is simple: the UAE exporter is paid in Indian rupees (invoice denominated in rupees) and credited to his nostro account opened with a bank operating in India. And vice versa for Indian exporters receive dirhams for their exports (invoices in dirhams).

Trading in local currencies aims not only to boost bilateral trade, but also to develop a payment mechanism allowing the emergence of an INR/AED parity (forex). The objective is to achieve volumes which would ensure good liquidity and thus low conversion costs.

New blow for the petrodollar

The very first agreement was concluded between the Indian Oil Corporation (IOC), which pays in Indian rupees for oil produced in the United Arab Emirates.

The central banks of both countries are optimistic, but more needs to be done to convince small and medium-sized businesses.

THE Khaleej Times reports that transaction fees are currently around 2% on average. Fees remain very high for small businesses. The objective of the two countries to ensure that payments in local currencies “significantly reduces transaction costs” :

“This local currency settlement system (LCSS) could make exports more competitive and more accessible to small players. In addition to reducing transaction costs, this payment system offers rapid settlement times.”

The Emirati newspaper adds:

“The rupee-dirham agreement is not dedollarization. It aims to reduce dependence on the dollar. Rupee-dirham agreement will protect bilateral trade from geopolitical risks […] and will help both countries reduce their dependence and exposure on the reserve currency of the dollar. »

Internationalization of the rupee

The Reserve Bank of India (RBI) plans to expand its instant payment system to 20 countries over the next five years.

In its annual report, the RBI said the interconnection work will begin this year. The project will be carried out by the National Payments Corporation of India (NPCI) through the Unified Payments Interface (UPI) system.

UPI operates in France, Sri Lanka, Bhutan, Nepal, Singapore, Peru and the United Arab Emirates.

The NPCI plans to soon deploy its UPI system in around ten Asian countries. These are Malaysia, Thailand, Philippines, Vietnam, Singapore, Cambodia, South Korea, Japan, Taiwan and Hong Kong.

“Efforts are underway to internationalize the Indian rupee through settlement of bilateral trade in local currency”the RBI report said.

Dedollarization is not a myth. A myriad of solutions are currently being tested around the world.

That being said, bitcoin remains far ahead of its time. It is an almost free international payment system as well as a store of value.

Transferring the equivalent of 100 million rupees in bitcoin costs $1. Conversely, a fee of 2% on 100 million gives us 2 million rupees, or 24,000 dollars…

Don’t miss our article on dedollarization: The dollar is faltering.

Maximize your Cointribune experience with our ‘Read to Earn’ program! For every article you read, earn points and access exclusive rewards. Sign up now and start earning benefits.

Click here to join ‘Read to Earn’ and turn your passion for crypto into rewards!

Nicolas T. avatarNicolas T. avatar

Nicholas T.

Reporting on Bitcoin, “the goddess of wisdom, feeding on the fire of truth, exponentially growing ever smarter, faster, and stronger behind a wall of encrypted energy”.

-

-

PREV Forecasts point to several Fed interest rate cuts amid global market volatility
NEXT Gas prices, DPE, savings plan… What’s changing on July 1, 2024