The Reserve Bank of India and Bank Indonesia have signed a memorandum of understanding to set up a framework for the use of local currencies for bilateral trade.
The MoU is aimed at facilitating the use of the Indian rupee and the Indonesian rupiah for "all current account transactions, permissible capital account transactions and any other economic and financial transactions as agreed upon by both countries," according to a release by Bank Indonesia.
Last July, the RBI recommended a host of measures, including facilitating a local-currency system framework for bilateral transactions in local currencies and encouraging the opening of rupee accounts for non-residents, both within and outside India.
In 2022–23, the bilateral trade between India and Indonesia stood at $38.8 billion, compared with $26.2 billion in the previous fiscal year. Imports from Indonesia grew 63% to $28.8 billion in fiscal 2023, while exports rose 18% to $10 billion.
The agreement will allow exporters and importers to settle trade in the respective currencies, enabling the development of the Indonesian rupiah-Indian rupee foreign exchange market. The use of local currencies would optimise costs and settlement time for transactions, according to the release.
In October, India and Tanzania agreed on increasing the use of local currencies for trade. The two sides signed six agreements for cooperation in various sectors, including digital transformation, culture, sports, maritime industries and white-shipping information sharing.
In August, India and the United Arab Emirates executed the first crude-oil transaction using the local currency settlement system in an effort to boost economic ties by facilitating cross-border trade in local currencies.
Malaysia is another country with which India entered into a pact to settle trade in Indian rupees. The framework was operationalised last April, with India International Bank of Malaysia opening a special rupee vostro account with Union Bank of India.
Banks from Belarus, Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, the Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, Bangladesh, the Maldives, Kazakhstan and the UK have opened special rupee vostro accounts in Indian banks, according to the Ministry of External Affairs.
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