- RTS mechanism uses rupees instead of dollars and other big currencies for international transactions.
- Recently, Tajikistan, Luxembourg, Cuba, and Sudan, have begun talks with India regarding the RTS mechanism.
- Earlier, the Reserve Bank of India in July 2022 set up the RTS mechanism after the western sanctions on Russia over Ukraine War
Internationalization of the Rupee is a process of increasing rupee acceptance (credibility) across the world through its:
- Increased use in invoicing and settlement of cross-border transactions.
- Freedom for non-residents to hold financial assets/liabilities or tradable balance in rupee.
Benefits of Internationalisation of the Rupee:-
- Reduced Foreign Exchange Reserves are required for Balance of Payment Stability.
- Reduced Vulnerability to External Shocks and Currency Risks, increasing the bargaining power of Indian Enterprises.
- Lower Transaction Costs and Facilitate Trade with countries facing sanctions or short of dollars.
Challenges in the Internationalisation of the Rupee:-
- Complicates Domestic Monetary Policy by limiting its effectiveness and independence.
- Reduced Reserve Accretion, i.e. gradual and incremental growth of reserve assets.
- Heightened Exchange Rate Volatility (value of rupee).