The Reserve Bank of India (RBI) has given the go-ahead for India and Tanzania to use their national currencies for bilateral trade settlement.
The use of national currencies in bilateral trade settlements is expected to reduce the cost of transactions and enhance the efficiency of cross-border trade. This, in turn, will lead to increased trade volumes and greater economic cooperation between India and Tanzania.
A statement issued by the Indian High Commissioner to Tanzania, Binaya Pradhan expressed optimism that the business community will benefit from the move. In a tweet he said, “Good news for India-Tanzania Trade; Rupee & Tanzanian Shiling (Tsh) can now be used for settlement of bilateral trade, Reserve Bank of India has allowed such mechanism; business community from both sides should make best use of it”
Under this mechanism, authorised banks in India will open Special Rupee Vostro Accounts (SRVAs) of correspondent banks of Tanzania. Tanzanian banks will have to open Special Rupee Vostro Accounts in India by approaching authorised Indian banks, who will in turn approach RBI for their approval with details of the arrangement.
Bank of Baroda has received RBI’s approval for opening SRVAs for its foreign branches and subsidiaries situated in various countries including Tanzania.
This arrangement is now applicable to 18 countries which are, Tanzania, Kenya, Uganda, Botswana, Fiji, Germany, Guyana, Israel, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka and the United Kingdom.
Indian importers will make payment in INR, which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods/services from the overseas seller/supplier. Indian exporters can be paid their export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.
The Indian high commission in Tanzania is organising a Stakeholders Consultation Meeting on 24th March 2023 where details about the bilateral trade mechanism using local currency and its benefits would be discussed. This move towards using national currencies for bilateral trade settlement is in line with the RBI’s objective of promoting the use of domestic currencies in cross-border transactions, which is expected to reduce the dependence on foreign currencies, especially the US dollar.