rupee: Digitalisation will help rupee become global: RBI report

Digitalisation will hasten internationalisation of the rupee, which will result in lowering transaction costs for cross-border trade and investment operations and lower exchange rate risk, Reserve Bank of India (RBI) said in its annual report on Currency and Finance.“Given considerations of financial stability and global coordination, the shift towards open economy digitalisation is expected to be gradual and measured, which has been India’s approach. The internationalisation of the UPI is a pertinent example of this approach. The initial steps were aimed to enable Indian travellers and diaspora to make merchant payments using UPI abroad. The next upgradation was the ability to make person-to-person remittances using UPI with the same efficiency as of domestic transactions.” The report said.

Bilateral or multilateral trade and payments arrangements, special vostro accounts, local currency settlements and bilateral swap arrangements are among the ways listed by the central bank to internationalise the rupee.

The report suggested that multilateral arrangements like the ones with the Asian Clearing Union (ACU), SAARC Currency Swap Framework, the UPI-PayNow linkage between India and Singapore and bilateral understandings such as with the Central Bank of the UAE could be a way to internationalise the rupee and support liquidity arrangements especially in times of a financial crunch.

“Authorised dealer banks are permitted to open special rupee Vostro account (SRVA) to settle trade transactions in rupee with any country. Rupee payments for imports can be credited to these accounts. Balance in the SRVA can be used for any permissible current and capital account transactions,” the report said.

The report also cited example of local currency settlement MOUs by India with countries like the UAE and Indonesia and the India-Japan swap arrangement.