Using a rupee route to get around a dominating dollar

A number of countries, including India, are now considering the use of other currencies to avoid the U.S. dollar and its hegemonic role in settling international transactions. The present scenario In recent times, India has been taking an active interest in having the rupee used for trade and the settlement of payments with other countries, which include Russia, now facing sanctions. While options for invoicing in rupees were already legal in terms of Regulation 7 of the Foreign Exchange Management Regulations, 2016, the current circular aims to operationalise the special Vostro accounts with Russian banks in India, in a bid to promote trade and also gain a better status for the rupee as an international currency. With India having a trade deficit with Russia, which has been around $3.52 billion on average over the last two financial years, India’s opportunities include the possible use, by Russia, of the surpluses in the Vostro rupee account in Russian banks for additional purchases from India. A comprehensive bilateral trade and payments agreement was signed by India in 1953 with the Soviet bloc countries Crucial aspects of the arrangement included: participation by state-trading units alone; fixed exchange rates as agreed upon by trade partners, and the offer of credit by countries that had a trade surplus to countries with a trade deficit.