RupeeTrade Settlements (RTS) Mechanism Draws Interest From Four More Nations

Current Affairs

  • 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).

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