India and Malaysia dump dollar, to settle trade in Indian rupee

India and Malaysia have agreed to settle trade related payments in Indian rupees, the New Delhi government has announced.

The Indian foreign ministry made the announcement on Saturday and follows the directive of the country’s central bank—the Reserve Bank of India—which has been pushing for the settlement of international trade in Indian currency.

The move comes in the wake of India making efforts to shift away from US dollars—the dominant reserve currency for international trade—as it has been appreciating against the local currency in the aftermath of the Russia-Ukraine war.

“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 Ministry of External Affairs said in a statement.

“This follows the decision by the Reserve Bank of India in July 2022 to allow the settlement of international trade in the Indian Rupee (INR). This initiative by RBI is aimed at facilitating the growth of global trade and to support the interests of the global trading community in Indian rupees.”

To facilitate settlement in Indian rupee, the Union Bank of India has opened a Special Rupee Vostro Account through its “corresponding bank” in Malaysia — India International Bank of Malaysia, based in Kuala Lumpur.

Vostro accounts are used to make payments in domestic currency.

In a separate statement, the India International Bank of Malaysia said, “IIBM now offers the facility to settle India-Malaysia bilateral trade in Indian Rupee (INR)…This new mechanism is also aligned with Malaysia’s foreign exchange policies (FEP) as part of which Malaysian banks are allowed to undertake the settlement of international trade in goods or services in any foreign currency, subject to the rules and regulations of Bank Negara Malaysia.”

“Under this facility, exporters and importers from India and Malaysia can now invoice the trade in Indian Rupee (INR) and achieve better pricing for goods and services traded. IIBM will facilitate the traders in Malaysia for settlement of this trade in Indian Rupee (INR). For this purpose, IIBM has opened a Special Rupee Vostro Account through its Corresponding Bank in India i.e. Union Bank of India,” IIBM said.

Malaysia is the 27th largest investor in India with foreign direct investment of $ 300 million between April 2000 and June last year. The total FDI into India totalled around $ 298.8 million.

While the bilateral trade between both countries touched $13.86 billion in April-November 2022.