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India Pushes Trade in Local Currency  

FILE - An Indian man displays new currency notes of 2000 Indian rupee in Ahmadabad, India, Nov. 11, 2016.
FILE - An Indian man displays new currency notes of 2000 Indian rupee in Ahmadabad, India, Nov. 11, 2016.

India is taking steps to promote the use of its own currency for international trade as part of a push to boost its exports in countries that are grappling with a shortage of dollars or hit with Western sanctions.

Trade experts say moves to promote the Indian rupee as an alternative to the dollar and currencies like the euro gained momentum after Western sanctions on Russia following its war with Ukraine prompted New Delhi and Moscow to trade in currencies other than the dollar including the ruble and rupee.

India has not joined the U.S.-led sanctions and its imports of cheaper crude from Russia have spiraled in the past year.

India’s commerce secretary, Sunil Barthwal, said at a news conference last Friday that New Delhi will support international trade using the rupee.

“If there are countries where there is any currency failure or they are having dollar shortages or international currency shortages, we are willing to trade in rupee with them, which will take not only our exports forward but also disaster-proof those countries,” Barthwal said in announcing the country’s new foreign trade policy.

India is among several countries exploring trading mechanisms that bypass the dollar, which has dominated international trade for decades.

New Delhi has signed an agreement with Malaysia that paves the way for trade in Indian rupees.

"Trade between India and Malaysia can now be settled in Indian Rupee (INR) in addition to the current modes of settlement in other currencies," the foreign ministry said in a statement on Saturday.

Experts say the move could help promote India’s trade with South Asian countries like Sri Lanka and Bangladesh that are grappling with a shortage of dollars. Like many developing countries, the rising global prices of oil and food in the wake of the Ukraine war have put pressure on their foreign exchange reserves.

Sri Lanka defaulted on its foreign debt last year after its foreign exchange reserves plunged amid an economic crisis. Bangladesh’s dollar reserves have fallen to their lowest level in six years.

“The rupee mechanism is a good measure to deal with countries facing a dollar crunch. For example, from the exporters point of view, if they cannot trade with Sri Lanka because they don’t have sufficient foreign exchange, it is better to export in rupees and carry on business,” Ajay Sahai, Director-General of the Federation of Indian Export Organizations told VOA.

India is also holding discussions on trading in rupees with larger trading partners, including key oil suppliers Saudi Arabia and United Arab Emirates.

Trade experts point out that it is not just Western sanctions on Russia that accelerated the trend to circumvent the dollar. The strength of the U.S. currency in the past year has also posed a challenge for many developing countries including India, which have seen their import bills soar.

“India does not earn enough dollars because it runs a trade deficit as it imports more than it exports. And as the economy is rebounding, imports are rising, putting pressure on the Indian rupee and making it depreciate sharply against the dollar,” said Biswajit Dhar, a professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University in New Delhi. “So if you trade in rupees instead of dollars, one is basically taking it off the hook."

However, efforts at increasing rupee trade are at a very nascent stage. “We still have a long way to go and a predominant share of trade happens in dollars,” pointed out Sahai, saying that trading in rupees presents both advantages and challenges.

“The advantage is that you are protected against dollar fluctuations, but at the same time, we lose the advantage of a depreciating rupee,” said Sahai.

Malaysia will be a test case that other countries will watch to decide whether trading in the Indian currency is feasible.

India has already established a rupee-ruble payment mechanism with Moscow, which experts say is serving as a template for other countries.

Last July, banks from 18 countries set up rupee accounts in Indian banks. They include Mauritius, Kenya, Tanzania, Israel, Germany, Oman and Singapore.

India is not the only country making efforts to circumvent the U.S. currency for trade. China and Russia are leading efforts to reduce dependence on the U.S. dollar as relations between the Washington and Beijing deteriorate and Moscow tries to insulate itself from the impact of Western sanctions.

East Asian countries are also looking to boost trade within the region in local currencies. A meeting of central bank governors and finance ministers of the Association of Southeast Asian Countries (ASEAN) last week decided to explore how to promote the use of local currencies in the region for financial transactions.