A number of countries, including India, are now considering the use of other currencies to avoid the U.S. dollar and its hegemonic role in settling international transactions. As for India, currency hierarchy goes back to colonial times when the Indian rupee was virtually linked to the British pound rather than to gold which it earned through exports. In the post-War period, the neo-colonial currency hierarchy has been clubbed with the continued use, primarily of the U.S. dollar, for the majority of international transactions. The current situation relates, in addition, to geopolitical developments, the Russia-Ukraine war in the forefront followed by the sanctions imposed on Russia by the West.
The present scenario
In recent times, India has been taking an active interest in having the rupee used for trade and the settlement of payments with other countries, which include Russia, now facing sanctions. Even earlier, the annexation of Crimea in 2014 had resulted in the imposition of similar sanctions against Russia over a period of time. Settling payments with Russia by India, especially for mineral fuels and oil imports as well as for the S-400 Triumf air defence system has been continuing on a semi-informal basis through rupee payments by using the Vostro accounts maintained by Russian banks in India. The Reserve Bank of India has recently taken a proactive stand to have rupee settlement of trade (circular dated July 11, 2022). While options for invoicing in rupees were already legal in terms of Regulation 7(1) of the Foreign Exchange Management (Deposit) Regulations, 2016, the current circular aims to operationalise the special Vostro accounts with Russian banks in India, in a bid to promote trade and also gain a better status for the rupee as an international currency.
