India’s central bank has moved to expand the international role of the Indian rupee, allowing banks to lend and settle trade in the currency with neighbors Sri Lanka, Nepal and Bhutan.
The Reserve Bank of India said that authorized dealer banks in India and their overseas branches can extend rupee-denominated loans to residents, businesses and financial institutions in the three countries for trade and related purposes.
The RBI also said balances in Special Rupee Vostro Accounts — accounts used to facilitate trade settlement in rupees — can now be invested in corporate bonds and commercial paper, widening their scope beyond government securities.
Officials said the step will reduce reliance on the U.S. dollar in regional transactions, cut conversion costs and strengthen liquidity of the rupee outside India. The central bank also plans to publish reference rates for currencies of key trade partners to improve transparency in rupee settlements.
Analysts described the move as part of a long-term effort to internationalize the rupee. They cautioned, however, that broader adoption will depend on stability of the currency and the willingness of neighboring countries to hold rupee reserves. (Newswire)