The Central Bank of Sri Lanka (CBSL) said it was awaiting the approval of the Reserve Bank of India (RBI) to designate the Indian rupee (INR) as a foreign currency in Sri Lanka, as the island nation’s bank neighboring India Has opened. The report has come out. Special Rupee Trade Accounts, called Vostro Accounts.
Sri Lanka had requested RBI to facilitate and promote trade and tourism in the SAARC region.
This means that Sri Lankan citizens can now hold $10,000 (INR 8,26,823) in physical form. It also means that Sri Lankans and Indians can use the Indian rupee instead of the US dollar for international transactions with each other. Since July this year, the Indian government has been trying to bring dollar deficient countries into its rupee settlement mechanism.
This is because the designation of INR as a legal currency in Sri Lanka will provide much-needed liquidity support to the country to help it tide over its economic crisis amid inadequate availability of the US dollar.
India’s central bank has permitted banks to open 12 vostro accounts for trading in the rupee with Russia. Six other accounts have also been authorised, including five for trade with Sri Lanka and one for trade with Mauritius, in a Reserve Bank of India document cited by The Economic Times. Countries such as Tajikistan, Cuba, Luxembourg and Sudan are also reportedly in talks about using the rupee settlement mechanism.
In July, the Reserve Bank of India notified a new system for settlement of international trades in rupees. Its objective was not only to depreciate the rupee against the dollar but also to internationalize the Indian currency.