India may be on the brink of a significant shift in its global trade dynamics as several countries have shown interest in conducting trade transactions using the Indian rupee. Commerce and Industry Minister Piyush Goyal revealed this groundbreaking development on March 11, describing it as potentially "game-changing" for India's trade relations worldwide. Notably, neighboring countries like Bangladesh and Sri Lanka, along with nations in the Gulf region, have expressed their willingness to embrace this new approach.

Goyal highlighted that Bangladesh and Sri Lanka are enthusiastic about commencing trade immediately, while countries in the Gulf region are seriously considering the possibility. He also mentioned that more developed countries and nations in the Far East are likely to join in eventually, with Singapore already showing some interest.

The shift towards trading in domestic currencies is gaining momentum globally, with more countries recognizing its advantages. By conducting transactions directly in local currencies, both parties can significantly reduce transaction costs, explained Minister Goyal.

The UAE was among the first to adopt this mechanism, which has since gained momentum. India's initial payment in rupees for crude oil purchased from the UAE marked the beginning of this trend. However, implementing direct currency transactions may take time as it requires coordination between central bankers and acceptance by importers and exporters, cautioned Goyal.

Trading in the Indian rupee offers stability against most international currencies, making it an attractive option for many nations. Additionally, the rupee trade mechanism has proven beneficial for countries facing a shortage of US dollars.

India has already initiated rupee-based trade with neighboring countries such as Nepal and Bhutan. Furthermore, the inclusion of the rupee in Sri Lanka's list of designated foreign currencies aims to facilitate trade between the two nations.

In support of using the Indian rupee in international trade, amendments have been made to the Foreign Trade Policy (FTP). These changes enable trade settlement in rupees and aim to establish the INR as a global currency. The Reserve Bank of India (RBI) authorized Indian banks to open and maintain special rupee Vostro accounts for partner trading countries' banks in July 2022. These accounts hold the foreign banks' rupee holdings with their Indian counterparts.

HDFC Bank and UCO Bank have already opened special Vostro accounts to facilitate overseas trade in rupees. Many countries have expressed interest in establishing similar arrangements for local currency trade, signaling a potential shift in global trade dynamics with India at the forefront.

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