Sri Lanka has been facing a degrading economy since last year, especially a shortage of US dollars. Designating the Indian rupee as the legal currency would help them with liquidity support.
Sri Lanka has agreed to use Indian rupee (INR) for international trade. It comes days after the Government of India said it is looking at ways to bring countries that are particularly short of dollars into the ambit of Indian rupee trade settlement mechanism.
Sri Lankan banks have reportedly opened special rupee trading account called – Special Vostro rupee accounts, or SVRA – for trading in INR.
How will it benefit Sri Lanka?
Severe economic crisis and dollar crunch have been weighing on Sri Lanka for almost a year. Designating the Indian rupee as a legal currency will provide the island nation with much-needed liquidity support.
With the opening of Vostro accounts, people in Sri Lanka can now hold USD 10,000 (Rs 8,26,823) in physical form.
Also, Sri Lankans and Indians can use Indian rupees instead of US dollars for international transactions between each other.
Notably, since July this year, the Indian government has been looking to bring countries that are short of dollars, into its rupee settlement mechanism.
Russia to trade in Indian rupee
Russia is also expected to be one the first countries to use the Indian rupee trade settlement mechanism.
Not just Sri Lanka and Russia India’s rupee trade settlement mechanism is also attracting interest from other countries including Tajikistan, Cuba, Luxembourg and Sudan.
Notably, rupee becoming an international currency would possibly reduce India’s trade deficit and will help strengthen it in the global market.
