The Reserve Bank of India (RBI) and Bank Indonesia (BI) signed a Memorandum of Understanding (MoU) on Thursday to establish a framework encouraging the use of local currencies, the Indonesian Rupiah (IDR) and the Indian Rupee (INR), for cross-border transactions.
Shaktikanta Das, the governor of the Reserve Bank of India, and Perry Warjiyo, the governor of Bank Indonesia, signed the Memorandum of Understanding.
The goal of the Memorandum of Understanding between Indonesia and India on creating a framework for collaboration in the field of cross-border transactions in local currencies is to encourage the usage of INR and IDR on a bilateral basis.
All current account transactions, authorised capital account transactions, and any other financial or economic transactions that both nations agree upon are covered by the MoU.
By allowing exporters and importers to issue invoices and make payments in their currencies, this framework would facilitate the growth of the INR-IDR foreign currency market. The RBI stated in a statement that using local currencies would minimise transaction costs and settlement times.
This partnership is a significant turning point in the development of bilateral cooperation between RBI and BI.
The central bank stated that using local currencies in bilateral transactions will eventually help to advance commerce between Indonesia and India, deepen financial integration, and bolster the countries’ long-standing historical, cultural, and economic ties.
The Indian rupee began its road towards internationalisation as a rather weak currency. One of the most important metrics for assessing a nation’s economic progress is the value of its currency and how it is used in international trade.
As part of progressive de-dollarization initiatives, banks from more than 20 countries have opened special Rupee vostro accounts in Indian banks to transact in local currency, the Parliament was informed in 2023.
Put simply, vostro accounts allow domestic banks to provide customers with global banking demands by offering international banking services.
To stimulate international trade with a focus on Indian exports and raise interest in the rupee, the Reserve Bank of India implemented a plan in 2022 that permitted transactions in local currencies.
After the Reserve Bank of India (RBI) announced a system to settle payments for foreign trade in rupees, particularly for India’s exports, the internationalisation of the rupee gained momentum. On July 11, 2022, the RBI approved the use of Indian rupee for invoices and payments in foreign trade.
The consensus among experts is that should the system succeed, it might eventually contribute significantly to the internationalisation of the Indian rupee. If a currency is widely used as a means of trade around the globe, it is considered to be “international.”