India and Malaysia can now use rupee to settle trade

India and Malaysia can now use the Indian rupee to settle trade addition to other currencies, the Ministry of External Affairs said on Saturday. The move follows the decision by the Reserve Bank of India in July last year to allow settlement of international trade in Indian currency. The MEA said the

RBI's initiative is aimed at facilitating the growth of trade an supporting the interests of the global trading community in the Indian rupee. "India International Bank of Malaysia (IIBM), based in Kuala Lumpur , ahs operationalized this mechanism by opening a special Rupee Vostro account through its corresponding bank in India that is Union Bank of India."

What is a Vostro Account?

Vostro accounts are used to make payments in domestic currency. The opening of this account will allow Malaysia to use the Indian Rupee to settle trade payments. This move is expected to benefit both India and Malaysia. It will eliminate the need for foreign exchange conversion and will reduce transaction costs. This development is also expected to lead to especially to lead to increase trade between the two countries especially in areas such as Textiles, automobiles and electronics.

What is De-dollarization?

De-dollarization is a process of substituting the US dollar as the currency used for:

Trading oil and/ or other commodities

Buying US dollar for the forex reserve
Bilateral trade agreements
Dollar-dominated assets

It happens when the central bank of the country diversify their reserves away from the USD to other assets or currencies like the Euro, Renminbi, Rupee or gold. The USD has been the world's dominant

currency since the conclusion of the second world war. Since then it has been the most sought currency for decades, which means it is held by central banks across the globe in significant quantity. This unique ability not only makes the US the leader in the financial and monetary system, but also provides incomparable leverage when it comes to coercive ability to shape decisions taken by governments, businesses, and institutions.

What is the cause of this shift?

The Ukraine was played a very important role for this decision as oil prices rose all across the world. The price rise and also the food shortage create an environment for the decision to de-dollarize their

economy. The US has used this leverage for a very long time, they have imposed sanctions on regimes and states to achieve their foreign policy goals. After the US-China trade war, China started the process of discussing the possibility of using yuan in the trade with countries.

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