Colombo and Delhi towards adopting the Indian rupee in transactions
The two governments are negotiating the move to expand economic cooperation especially in the energy sector. It would be a way to stem the foreign exchange problems created by the economic crisis. Several banks in Sri Lanka have already opened special accounts to allow them to trade directly with the Indian currency.
Colombo (AsiaNews) - India and Sri Lanka are discussing the adoption of the Indian rupee as currency in trade transactions, as part of expanding cooperation especially in the energy sector.
Pramod Kumar Mishra, Principal Secretary to Indian Prime Minister Narendra Modi, met with Sri Lankan High Commissioner Milinda Moragoda in New Delhi in recent days to continue the dialogue between the two countries with the aim of promoting bilateral trade.
Meanwhile, the Indian Ministry of Finance has asked the Indian Banks Association (IBA) and the Federation of Indian Export Organisations (FIEO) 'to proceed with a stakeholder awareness campaign on rupee trade'.
Dasun Gunatillake, senior manager of a state bank, explained to AsiaNews that 'several banks in Sri Lanka have opened special accounts for rupee trading, called Vostro accounts. In this way, Sri Lankans can now hold 10 thousand dollars in physical form and use Indian rupees for transactions with their Indian counterparts'.
Economic analyst Shirantha Jayamanne believes that 'the designation of the Indian rupee as legal tender in Sri Lanka can provide its coastal neighbour with much-needed liquidity support to help overcome the economic crisis caused by the insufficient availability of US dollars'.
"In 2021/2022 to cope with the crisis, Sri Lankan government economists printed money creating shortages of valuable currency. Limits were set for outgoing remittances. Today Sri Lanka is a net recipient of remittances, like most South Asian countries.
Meanwhile, the Indian rupee is used officially to settle transactions by Sri Lankans travelling to India, unofficially. Banknotes available on the black market are used,' Shirantha revealed.
According to the scholar Chaminda Hewapathirana, "the Central Bank of India encouraged Sri Lankan banks to open VOU accounts to settle transactions. After all, the Indian rupee was the 'South Asian dollar': until 1950, Sri Lanka had a one-to-one exchange rate with the Indian rupee."
"The Sri Lankan rupee, like most South Asian currencies derived from the Indian rupee. It was pegged to silver reserves, later switched to gold, before the macroeconomists got the power to print money at will as the classical economy receded," Chaminda recalled.
Sri Lanka's Foreign Minister Ali Sabry also expressed the wish "to accept the Indian currency as a common legal tender to work with, to strengthen and integrate both economies and allow people-to-people contacts and greater movement of goods."
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