India and Malaysia have announced that they will settle trade in Indian Rupees, signaling India's commitment towards de-dollarization of its international trade. The move is significant as the U.S. dollar has been the dominant reserve currency for international trade so far. The decision was taken by the Reserve Bank of India in July 2022, aimed at facilitating the growth of global trade and to support the interests of the global trading community in Indian Rupees.

 

This move has become necessary due to the impact of the Ukraine crisis, with the Russian economy being sanctioned by the western powers following President Putin's military action against Ukraine. The sanctions and war-making payments to Russia in U.S. dollars became increasingly difficult, which led to a search for solutions in national currencies and de-dollarization worldwide.

 

India International Bank of Malaysia (IIBM) has opened a Special Rupee Vostro Account through its Corresponding Bank in India, Union Bank of India, to operationalize this mechanism. This move will benefit both countries and the global trading community as a whole, as it reduces the dependence on the U.S. dollar for international trade.

 

The agreement between India and Malaysia to settle trade in Indian Rupees is a significant step towards de-dollarization of international trade. It not only benefits both countries but also the global trading community by reducing the dependence on the U.S. dollar for international trade. Furthermore, it helps safeguard Indian trade from the impact of the Ukraine crisis.

 

In conclusion, India's and Malaysia's decision to use Indian Rupees in international trade is a significant development. It marks a move towards de-dollarization, which can potentially lead to a shift in the global financial landscape. This decision will have an impact not only on India and Malaysia but on the entire global trading community.

 

UPSC Main Exam Question

 

Analyze the significance of India and Malaysia's agreement to settle trade in Indian Rupees and its implications for de-dollarization of international trade.

 

Answer: The recent agreement between India and Malaysia to settle trade in Indian Rupees holds immense significance in the context of de-dollarization of international trade. The move signifies India's willingness to take concrete steps towards reducing its dependence on the U.S. dollar as the dominant reserve currency for international trade.

 

The Reserve Bank of India's decision in July 2022 to allow the settlement of international trade in Indian Rupees was aimed at facilitating the growth of global trade and supporting the interests of the global trading community in Indian Rupees. The shift away from the U.S. dollar has become necessary, especially in light of the sanctions imposed on the Russian economy by western powers following President Putin’s launch of a so-called "special military operation" against Ukraine in February 2022.

 

The operationalisation of this mechanism by India International Bank of Malaysia (IIBM) through its Corresponding Bank in India i.e. Union Bank of India, will not only benefit both countries but also the global trading community as a whole. This move will reduce the dependence on the U.S. dollar for international trade and help safeguard Indian trade from the impact of the Ukraine crisis.

 

India's move towards de-dollarization of international trade has been a long-standing one, and this agreement with Malaysia is a significant step towards achieving that goal. This will also help in promoting the use of Indian Rupees in global trade and will make the Indian economy more competitive in the international market.

 

In conclusion, India and Malaysia's agreement to settle trade in Indian Rupees is a significant step towards reducing the dependence on the U.S. dollar for international trade and promoting the use of Indian Rupees in global trade. This move has far-reaching implications for the de-dollarization of international trade and will help safeguard India's trade from the impact of global crises.