After UAE, India signs local currency trade agreement with Indonesia
What's the story
The Reserve Bank of India (RBI) and Bank Indonesia (BI) have inked a memorandum of understanding (MoU) to foster cross-border transactions using local currencies. This is India's second such deal, following a similar agreement with the UAE. The collaboration seeks to establish an INR (Indian Rupee) and IDR (Indonesian Rupiah) foreign exchange market. This will enable traders to invoice and pay in their respective domestic currencies.
MoU's potential
MoU covers current and capital account transactions
The MoU bolsters bilateral cooperation between RBI and BI. It covers all current account transactions, permissible capital account transactions, and other mutually agreed-upon economic and financial transactions. By using local currencies for trade, both countries can optimize costs and streamline settlement times. This will ultimately boost trade between India and Indonesia.
Building ties
India uses INR in trade with neighbors
The Indian government has been trading in INR with neighboring countries, including Sri Lanka, Nepal, Bangladesh, and Bhutan. Countries such as Russia and Iran also accept Indian currency when accepting payments for commodities like oil and gas. RBI introduced the INR trade settlement mechanism in July 2022. That same month, RBI and the Central Bank of UAE signed two MoUs. This laid the groundwork for promoting bilateral trade in their currencies and interconnecting payment and messaging systems.