India launches internationalization of rupee

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

Asian de-dollarization

The UAE and India (both BRICS members) are among the fastest countries to clear the dollar from their trade. In July 2023, Narendra Modi and Sheikh Mohammed bin Zayed Al Nahyan signed an agreement providing for the settlement of transactions in their currencies, the rupee and the dirham.

The two countries maintain very strong cultural and trade relations. India is the second largest trading partner of the United Arab Emirates, and the UAE is the third largest trading partner of India. Their bilateral trade reached $84 billion in 2023, compared to $73 billion the previous year.

The transaction mechanism is simple: the UAE exporter is paid in Indian rupees (rupee denominated invoice) and deposited in his Nostro account opened with one of the banks operating in India. The opposite is true for Indian exporters who receive dirhams for their exports (invoicing in dirhams).

Trading in local currencies aims not only to promote bilateral trade, but also to develop a payment mechanism that allows parity to emerge between the Indian Rupee and the UAE Dirham (Forex). The goal is to achieve volumes that will ensure good liquidity and thus low transfer costs.

A new blow to the petrodollar

The first agreement was concluded between the Indian Oil Corporation (IOC) which pays in Indian rupees for oil produced in the UAE.

The central banks of both countries are optimistic, but more efforts are needed to convince small and medium-sized companies.

the Khaleej Times Reports indicate that transaction fees are currently around 2% At a rate. Fees are still too high for small businesses. The two countries aim to ensure that payments are in local currencies “Significantly reduces transaction costs” :

“The Local Currency Settlement System (LCSS) can make exports more competitive and more accessible for smaller players. In addition to reducing transaction costs, this payment system provides fast settlement times.

The Emirati newspaper adds:

“The rupee-dirham agreement is not a de-dollarization. It aims to reduce dependence on the dollar. The rupee-dirham agreement will protect bilateral trade from geopolitical risks.” […] It will help both countries reduce their dependence and exposure to the reserve currency, 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.

The Reserve Bank of India said in its annual report that interconnection work will begin this year. The project will be implemented 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 UAE.

NPCI plans to soon roll out its UPI system in about 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.”pointing to a report From the Reserve Bank of India.

De-dollarization is not a myth. Countless solutions are currently being tested around the world.

However, Bitcoin remains well 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 2% fee on 100 million gives us 2 million rupees, or $24,000…

Don't miss our article about dedollarization: The dollar is faltering.

Nicholas T.

Bitcoin reports, “The goddess of wisdom, feeding on the fire of truth, grows increasingly smarter, faster, and stronger behind a wall of cryptographic energy.”

Disclaimer

The comments and opinions expressed in this article are those of the author alone and should not be considered investment advice. Do your own research before making any investment decisions.