The Reserve Bank of India (RBI) is aiming to de-dollarize global trade and the Indian economy, Motilal Oswal Financial Services mentioned in a report.
In another move aimed at supporting the currency, the central bank allowed international trade settlement in INR on Monday. "To promote growth of global trade with emphasis on exports from India and to support the rising interest of the global trading community in INR, it has been determined to put in place an additional arrangement for invoicing, payment, and settlement of exports and imports in INR," the press release issued by the Reserve Bank stated.
Implementation of this process will need extensive deliberations with trading partners. The success of this steps will depend on how many of them are willing to trade in the INR. There is a probability that if India urges its import settlement in INR, the trading partner may ask for its import settlement in its local currency, which shows that reserve banbk will have to hold its foreign exchange reserves in many currencies.
Gold, Special Drawing Rights, Reserve Tranche Position with the International Monetary Fund, and foreign currency assets (FCA) are the four components of the foreign exchange reserves kept with the RBI. FCA makes up 93 percent of total foreign exchange reserves on average. The latter is kept in a multi-currency portfolio with the RBI and evaluated in US dollars. It consists of major currencies like the US dollar, euro, pound sterling, and japanese yen.
RBI sets up mechanism to settle trade in rupees