Will Rupee stand against the Dollar?

On 11th of July 2022, The Reseve bank of India made a very dynamic anouncement where domestic trader could settle their imports and exports with Indian rupees and this move of taking INR global is much big deal because it is said that to help India to directly trade with Russia without dependence of the American banks.

This could push us into new zone of world trade with Russia, Iran and Venezuela.

But this move would destroy our relations with both US and Europe. This is no just the major move from the economics point of view but also geo-political point of view.

What is the purpose of RBI policy behind this strategy? How this will help up to trade globally?

What will be the impact on Rupee?

Let's see

When Russia invaded Ukrain, the American sanctions removed Russia from SWIFT network and this made impact on trade of India and many more countries.

What is SWIFT network and how does it work?

Swift network usually involves six different entities. 

The Indian bank has account in American bank where Its has Indian money in dollars Similar with foreign bank.

This is because only American banks can hold Its dollars.

All countries have their account in American banks and have their money in dollars. 

This system requires lot of communication between different banks, lot of calculations to be done due to fluctuation rates in exchange rates across the world. That's why it is managed by highly sophisticated messaging network called the swift network. And this network is controlled by US and Europe.

There are some major problems with this system.

First is they can impose sanctions on countries that they don't like this will cut off the country from swift network. This will create problems for a country to trade over a globe.

Second is the swift controllers could freeze the money of other countries that are kept in their banks.

example is after the Ukrain invasion 300$ of Russia have been frozen by foreign sanctions. Since Russia can't use its own money to trade as it has beed locked.

And third is this system is very costlier cause entities that are involved take commissions over transactions.

And that is why 

Indian has come up with an alternative system to bypass the existing system and still do trade with foreign countries and this is done by allowing international trade to be done in Indian currency.

RBI said that this can be done through Wastro account.

This Wastro account will store money of foreign countries which will trade with India.

This will advantage us at getting goods from different countries at a cheaper cost.

Here we might face some problem as India has bilateral trade with US worth Rs 119.42 billion dollars.