A trader counts new 2,000-rupee notes at a wholesale vegetable market in Bangalore, India
AP Photo/Aijaz Rahi
India’s central bank is asking lenders to promote local currencies when trading with the UAE, Reuters reported.
The idea is to reduce the outflow of US dollars and help globalize the rupee.
It comes after India purchased 1 million barrels of oil from the UAE using rupees.
The Reserve Bank of India urged lenders to ask clients to settle transactions in the rupee or dirham when trading with the United Arab Emirates, instead of the US dollar, sources told Reuters.
The central bank hopes to stem India’s outflow of greenbacks and help promote the rupee internationally, according to the report.
A central bank official delivered the message to foreign exchange dealers during a seminar this month, Reuters said.
As the dollar is the primary currency used in international trade, especially for commodities, India’s $21.62 billion trade deficit with the UAE drains its supply of dollars.
The request from the central bank comes as India and the UAE have set themselves on a de-dollarization path.
The two countries signed a non-dollar trade agreement in July. And earlier this month, India purchased 1 million barrels of oil from the Abu Dhabi National Oil Company using rupees.
But larger private-sector companies are reluctant to use dirhams due to the low volume of the current rupee-dirham trade, sources told Reuters. Meanwhile, banks are also offering smaller companies discounted service charges to incentivize local currency transactions.
De-dollarization rhetoric has been rising globally ever since Russia’s invasion of Ukraine last year. As the war initiated Moscow’s exclusion from the dollar-denominated payments system, Russia began accepting local currencies in its international trade, such as selling oil for Indian rupees.
In addition, the BRICS bloc —Brazil, Russia, India, China and South Africa — seeks to create their own shared currency, though economist Jim O’Neill, who first coined the BRIC term, called the idea ridiculous.