Cross-border trade in local currencies reduces transaction costs: RBI deputy governor
Local currencies will increasingly drive cross-border trade and payments, reducing costs and improving efficiency. Technology will be leveraged across the entire customer transaction chain for digital origination and reporting. India's foreign exchange reserves have significantly grown, and domestic forex market turnover has doubled recently. The market faces challenges with skewed participation…
Mumbai - Local currencies will play a growing role in cross-border transactions and payments due to their ability to lower costs, minimize mismatches, and enhance settlement efficiency, according to RBI Deputy Governor Rohit Jain. Speaking at the Foreign Exchange Dealers Association of India's (FEDAI) Annual Day, Jain emphasized that markets must evolve to meet future needs.
Jain highlighted that India's foreign exchange reserves have grown from $38 billion in 2000 to $691 billion in 2026. Daily turnover in the domestic forex market has doubled from $41 billion in FY22 to around $80 billion currently. He noted that local currencies will increasingly be used in cross-border trade and payments, forming part of the Special Rupee Vostro Account (SRVA) framework.
The deputy governor stated that settling transactions in local currencies offers lower transaction costs, fewer mismatches, and improved efficiency. Leveraging technology is another key driver, with AI and machine learning expected to assist in document classification, anomaly detection, and reporting inconsistencies. However, Jain stressed that accountability cannot be automated.
Challenges remain in realizing the market's potential, such as skewed participation by public sector banks relative to their balance sheet size. Jain called for expanding the market-maker base, raising public sector bank participation, and encouraging electronic platforms. He also warned about unauthorised entities offering online forex trading that operate outside regulation.
Jain stressed that customers must be adequately informed about transaction requirements, costs, timelines, and recourse mechanisms. He urged FEDAI members and banks to educate customers and staff accordingly. Ultimately, Jain advocated for using technology to simplify transactions, ensure accurate reporting, strengthen controls, and make transparent platforms and hedging accessible to individuals and smaller businesses.
Written by urgent.news from The Economic Times - Economy's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
