2023-08-14 19:14:05
India pays in rupees for the first time to buy Emirati oil
India and the UAE have started settling bilateral trade in their local currencies, the Indian government said on Monday, adding that India’s largest refiner paid in rupees to buy 1 million barrels of oil from the Gulf state.
The Indian embassy in the UAE said, in a statement, that the Indian Oil Corporation paid in rupees to the Abu Dhabi National Oil Company (ADNOC).
The operation comes after a deal that included the sale of 25 kilograms of gold from an Emirati gold source to a buyer in India, at about 128.4 million rupees ($1.54 million).
In July, India signed an agreement with the UAE that allows trade to be settled in rupees instead of dollars, boosting India’s efforts to reduce transaction costs by eliminating dollar transfers.
On a visit by Indian Prime Minister Narendra Modi to the UAE, the two countries also agreed to set up a real-time payment link system to facilitate cross-border money transfers.
The bilateral trade volume between India and the UAE reached $84.5 billion between 2022 and 2023.
India is keen to reach similar agreements to pay in local currencies with other countries as it looks to boost exports in light of the slowdown in global trade.
Although it is not expected that the Indian rupee will replace the US dollar in dominating international trade in the near future, there are several factors that can contribute to strengthening the acceptance of the rupee in international settlements more broadly.
Rapid economic growth is one of the most important of these factors, as India is among the fastest growing economies in the world, and its economy is expected to continue growing in the coming years, which will necessarily lead to increased trade and investment with other countries, which could create a demand for the rupee as a settlement currency.
Add to this the reforms of the financial system in India, where the Indian government has made its financial markets more open and convenient for foreign investors, which made it easier for foreign investors to hold and use rupees, which also contributed to the increase in demand for rupees as a settlement currency.
The Reserve Bank of India has recently taken several steps to make the rupee more liquid and tradable, including increasing the availability of rupees in foreign exchange markets, and facilitating the conversion of rupees into other currencies at banks. These steps are widely seen as helping to make the rupee more attractive to international investors and businesses, which could also help increase its use in international settlements.
However, it should be noted that the dollar dominated international trade, especially in important commodities such as foodstuffs and energy, and it was the main reserve currency in most central banks, for more than 50 years, and it is still the preferred currency for settling the largest share of international trade and investment operations, which requires a major change. In the global economic landscape before the rupee, or any other currency other than the US dollar, became a truly world currency.
($1 = 83.17 rupees)
(Archyde.com, The New Arab)
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