India started internationalization of rupee

India hopes to connect around 20 countries to its payments network in the next five years.

Asian dedollarization

The United Arab Emirates and India (both BRICS members) are among the countries that are quick to purge the dollar from their trade. In July 2023, Narendra Modi and Sheikh Mohammed bin Zayed Al Nahyan signed an agreement for the settlement of transactions in their respective currencies, the rupee and the dirham.

The two countries maintain very strong cultural and trade ties. India is UAE's second largest trading partner and UAE is India's third largest trading partner. Their bilateral trade is expected to reach $84 billion in 2023, compared to $73 billion a year earlier.

The transaction process is simple: the UAE exporter is paid in Indian rupees (invoiced in rupees) and credited to his Nostro account opened with a bank operating in India. and vice versa (Dirham invoices) for Indian exporters receiving Dirhams for their exports.

Trading in local currencies aims not only to increase bilateral trade, but also to develop a payment system that allows the emergence of INR/AED parity (Forex). The aim is to achieve volumes that ensure good liquidity and thus low exchange costs.

Petro is another blow to the dollar

The first agreement was reached between the Indian Oil Corporation (IOC) to pay in Indian rupees for oil produced in the United Arab Emirates.

Both countries' central banks are optimistic, but more must be done to convince small and medium-sized businesses.

The Khaleej Times Transaction fees are currently reported to be around 2% On average. Fees are much higher for small businesses. Both countries aim to ensure that payments are made in local currencies “Significantly reduce transaction costs” :

“This Local Currency Settlement System (LCSS) can make exports more competitive and more accessible to smaller players. Apart from reducing transaction costs, this payment system provides faster settlement time.

The Emirati newspaper adds:

“The Rupee-Dirham deal is not dedollarization. It aims to reduce dependence on the dollar. The Rupee-Dirham agreement will protect bilateral trade from geopolitical risks […] And the dollar helps both countries gain exposure and reliance on the reserve currency. »

Internationalization of Rupee

The Reserve Bank of India (RBI) plans to expand the instant payment system to 20 countries in the next five years.

RBI has stated in its annual report that the interconnection works will start this year. The project is managed by the National Payments Corporation of India (NPCI) through the Unified Payments Interface (UPI) system.

UPI already works in France, Sri Lanka, Bhutan, Nepal, Singapore, Peru and the United Arab Emirates. NPCI plans to expand to around ten Asian countries soon. They are Malaysia, Thailand, Philippines, Vietnam, Singapore, Cambodia, South Korea, Japan, Taiwan and Hong Kong.

“Efforts are underway to internationalize the Indian rupee by settling bilateral trade in the local currency”refers to Report of RBI.

Dedollarization is not a myth. Many solutions are currently being tested around the world.

That being said, Bitcoin was way ahead of its time. It is an almost free international payment system as well as a store of value.

It costs $1 to transfer the equivalent of 100 million rupees in Bitcoin. Conversely, a 2% fee on 100 million gives us 2 million rupees or $24,000…

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

Nicholas T.

“The goddess of knowledge, feeding on the fire of truth, grows ever smarter, faster and stronger behind a wall of encrypted energy,” reports on Bitcoin.

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.