India’s forex reserve stood at roughly 600 billion dollars but over the last 14 months this number has started to get lower and lower so again the natural question comes are we going to meet Sri Lanka’s state because even in sri lanka the forex reserve fell quite aggressively?
this is because When the dollar’s rate keeps increasing, the RBI, from their reserves, starts selling dollars So that the supply is increased, And the rate lowers.
How Falling Rupee Value Impacting Indian Economy
In 2022, the RBI spent more than 40 billion dollars to keep Rupee stable, today the situation is that India is a net importer country Which means overall Our imports are way higher than our exports and for all these imported goods we have to pay in dollars,
The difference between this import & export is known as Trade Deficit, In the month of October, only Our Trade Deficit was $26.91 billion No matter how many ‘Atmanirbhar Bharat’ slogans we raise
The truth is that Our imports won’t decrease And due to this in the future Dollar’s price is only going to increase But there is hope
There are 154 countries with whom India’s exports are more than its imports This is a fact that A country like China Will never agree to trade in rupees And even trying to convince them of this is a waste.
But Bangladesh can agree, and Sri Lanka can agree In fact, it has agreed to Sri Lanka has agreed to trade with India in rupees And both countries benefit from this If Sri Lanka doesn’t have dollars today Then it can pay in Indian rupees Similarly, America has put sanctions on Russia So they can’t trade in dollars
Sri Lankan rupee in dollar comparison has gone down by 84% And in contrast to the Indian rupee by Only 70% So for them, buying the rupee is cheaper than buying dollars.
and after the Russia-Ukraine conflict Trade has increased between Russia & China Similarly, in Russia’s matter With India too Trading in the rupee can happen By Rupee becomes international India will of course benefit.
But two types of countries will benefit from it a lot of Countries like Sri Lanka Which does not have dollars And countries like Russia which cannot trade in dollars, Let’s understand how
trade happens in today’s world Let’s assume, B is a car dealer in India Who is importing cars from A Who is a dealer in France Now for payment, B will go to his Indian bank with his Indian rupees
Indian bank will convert it into Euros And pay it to the foreign bank Then the foreign bank will transfer euros to France’s dealer ‘A’ And then the cars will be shipped from France to India.
RBI Rupee Settlement System Explained!
To tackle this issue RBI has launched a rupee settlement system. The primary objective of the rupee settlement system is to stabilize the falling of the Indian rupee. RBI’s plan is fairly simple which is to increase the demand for rupees why not play with the supply curve simply because of the fact that this supply is entirely controlled
by the government and they are not bothered about the supply per se but they are very much bothered with the demand for Indian rupees and the core objective of the rupee settlement system is to boost the demand for INR. The core objective is that let other countries across the world trade with India in Indian rupees.
Now this situation is going to change Now RBI has started a rupee settlement system in which A special Vostro account system is implemented
Here, foreign banks can open Indian Rupee accounts for trade Suppose France opens a Vostro account with SBI Now, when the Indian dealer B Imports cars from France
He doesn’t have to pay in euros But in rupees, only These payments are to be done Not in a foreign bank But India’s SBI only
In this Vostro account of France Indian rupees will be deposited.
now what happens is that if we are buying oil from Russia then we have to pay them in u.s dollars now because of the fact that a lot of countries have become anti-us, especially countries like China and Russia and it is assumed that
they would want to trade with India in INR rather than us dollars or would want to trade with India in some other currency and rbi has come out with a time framework.
Then what will they do with those rupees?
France can spend the rupees from its Vostro account On exporters in India By buying goods from them Which means, Indian exporters will also get paid in Indian rupees only Which means, Indian money won’t go out of India
That’s the plan There are 35 countries today That are ready to trade in Rupee If India is successful in achieving this Then in this decade, It will be the biggest international win for India.