India, Indonesia To Engage In Mutual Currency Trade And Drop US Dollar

July 18, 2023 Posted by India Briefing Written by Chris Devonshire-Ellis Reading Time: 3 minutes

India Indonesia bilateral trade is currently worth US$38 billion and is rapidly growing via the India-ASEAN free trade agreement (FTA).

A day after New Delhi announced that it will set up a framework to settle bilateral trade with the UAE, one of its largest trading partners, in rupees and dirhams and interlink their fast payment systems, it has proposed a similar move to Indonesia.

Talks were held on Sunday (July 16) at a meeting between Indian Finance Minister Nirmala Sitharaman and her Indonesian counterpart, Mulyani Indrawati, on the sidelines of the third G20 Finance Ministers and Central Bank Governors meeting in Gandhinagar, Gujarat.

The arrangement between New Delhi and Jakarta will be similar to that with Abu Dhabi, and could see Indian exporters settle their trade in Indonesian rupiah, while those exporting goods from India could earn in Indian rupees. The Indonesian finance minister said on Sunday she and her Indian counterpart had discussed working together to strengthen policy dialogues on trade, digital technologies, payment systems, and growth.

The two countries are also reportedly seeking to expand the scope of digital payments using the framework of India’s Unified Payments Interface (UPI) instant payment system developed by National Payments Corporation of India.

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This comes just days after Indian Prime Minister Narendra Modi, while on a visit in Paris, announced that the UPI system will be made available in France, allowing Indian tourists to access the iconic Eiffel Tower by making a payment in rupees through a mobile application. On Saturday, India announced it is interlinking its UPI with the UAE’s Instant Payments Platform.

New Delhi has been actively moving towards making the Indian rupee a strong international currency that could be potentially used as an alternative to the US dollar for settling international trade. A recent report of the working group of the Reserve Bank of India stated that the rupee has the potential to become an internationalized currency, as India is one of the fastest growing countries and “has shown remarkable resilience even in the face of major headwinds.”

At the G20 meeting on Sunday, India and Indonesia unveiled the ‘Economic and Financial Dialogue’, a platform that seeks to strengthen cooperation between the two nations and foster a shared understanding on global issues, the Indian Ministry of Finance said in a statement. The platform is aimed at enhancing collaboration in bilateral and international economic and financial matters by bringing together economic policymakers and financial regulators from both countries.

Recognizing the potential of the digital economy, the two finance ministers also noted the potential for collaboration in the field of fintech for financial inclusion, the ministry added.

“The evolution of India’s ‘Look East Policy’ in 1991, followed by the ‘Act East Policy’, has facilitated a rapid development in our bilateral relations, particularly in the commercial and cultural fields,” Sitharaman said, adding that Indonesia has emerged as India’s largest trading partner in the ASEAN region, with bilateral trade seeing an eightfold increase since 2005, reaching US$38 billion in FY 2022-23. Some of the key items traded between the two countries are palm oil and petroleum.