THE BALANCE NEEDED TO INTERNATIONALISE THE₹

DURING the recent visit of Malaysian PM Anwar Ibrahim, Narendra Modi announced that trade between India and Malaysia can now be settled in Indian rupees and Malaysian ringgits.

- BISWAJIT DHAR

This announcement is the next step in decreasing the country's reliance on the US dollar after the Reserve Bank allowed settlement of international trade in the rupee in 2022. Just over a year ago, the India International Bank of Malaysia became the first in that country to operationalise this mechanism by opening a special rupee vostro account (SRVA) through its corresponding bank here, the Union Bank of India.

This is an important step for increasing India's exports to Malaysia, which have stagnated over the past few years, resulting in an increase of over 60 percent in India's trade deficit with the country since 2019-20.

The question is, how effective will rupee trade be in addressing this problem? Using the rupee for trade settlement has constantly been in focus since India decided to go against the sanctions imposed on Russia by Western countries after its invasion of Ukraine. As a part of the sanctions, seven Russian banks were denied access to SWIFT, which allows smooth transfer of funds across borders. Following this, India explored alternative routes of conducting trade, including using the rupee with one of its longstanding partners.