Dhaka, Bangladesh (BBN)- The Indian government is considering over half a dozen emerging markets including Bangladesh with which India can trade in rupees through currency swap arrangements.
This is a mechanism by which countries can trade in local currency and avoid dollar volatility, the Times of India reported.
The countries with which currency swaps are being considered are Bangladesh, Malaysia, Thailand, Russia, Vietnam, Turkey and Mexico. These are the countries with which India has two-way trade and most of them have seen their currency being battered against the dollar.
Reserve Bank of India (RBI), the country’s central bank, Governor Raghuram Rajan is a believer in local currency trade. “This might be a strange time to talk about rupee internationalisation, but we have to think beyond the next few months. As our trade expands, we will push for more settlement in rupees. This will also mean that we will have to open up our financial markets more for those who receive rupees to invest it back in. We intend to continue the path of steady liberalisation,” Rajan had said after taking charge last week.
The logic behind such swap arrangements is that both importing and exporting countries are hurt by forex volatility. “Currency fluctuations are turning out to be the biggest killer in export,” said Aman Chadha, chairman, Engineering Export Promotion Council.
He said that exporters who have billed on the basis of expectations that the dollar would be in the 68-70 range have taken a double hit as they have imported components at a higher rate and now stand to receive payments at a lower rate.
“We have given our suggestion to the task force on local currency swaps. Even if trade with the country is not completely balanced and there is a surplus on either side, the difference can be compensated in dollars,” said Chadha.
According to him, imports from Asean countries such as Thailand and Malaysia have jumped manifold. He pointed out that there has been a multifold surge in import of items such as air conditioners, automobile engines and auto components in the last six years which has resulted in a burgeoning current account deficit. “There is a need to make exports top priority,” he said.
BBN/SSR/AD-14Sept13-10:52 am (BST)
