ECONOMYNEXT – Top Central Bank officials of Sri Lanka and India discussed possibilities and potentials of enhancing the use of local currencies of the both countries in cross-border transaction, the Indian High Commission in Colombo said in a statement.
The Roundtable titled ‘INR-LKR Trade Settlement: Strengthening Bilateral Economic Ties’ comes amid efforts by India to internationalize its currency Indian rupee (INR).
India remains Sri Lanka’s largest trading partner, with bilateral merchandise trade totaling over $5.5 billion annually. India’s exports to Sri Lanka amounted to over $4 billion, while Sri Lanka’s exports to India were valued at around $1.5 billion.
In an effort to enhance trade efficiency, the Central Bank of Sri Lanka designated the Indian Rupee (INR) as an authorized foreign currency in August 2022.
This initiative aimed to facilitate smoother banking transactions, particularly for small-scale traders, by reducing the additional costs associated with dual currency conversions.
Aditya Gaiha, Chief General Manager, Reserve Bank of India (RBI) presented the details of INR internationalization and the INR-LKR trade settlement, at the roundtable.
“He also highlighted key policies of RBI which permit investments in INR in Sri Lanka. He further elaborated on RBI’s recent amendments to the Foreign Exchange Management Act (FEMA), aimed at enhancing the use of INR-LKR in cross-border transactions,” the Indian High Commission said in a statement.
Nandalal Weerasinghe, Governor of Sri Lanka’s Central Bank underscored the importance of the mechanism and encouraged banks to engage with policy makers and central banks in both countries on streamlining the mechanism.
The initiative aligns with the commitment reaffirmed at the highest levels of leadership during the recent visit of Sri Lanka
President Anura Kumara Disanayaka to India where he met with Prime Minister Narendra Modi, the High Commission said.
“Among the key outcomes of their discussions was a renewed focus on enhancing INR-LKR trade settlements to deepen trade and investment ties between the two nations.”
The RBI last month further relaxed regulations under the foreign exchange management act to encourage the use of the rupee and other currencies to settle cross-border transactions.
The move will allow Indian exporters to open accounts in any foreign currency overseas to settle trade transactions, including receiving export proceeds, and use these proceeds to pay for imports.
Under the adoption of INR-denominated trade settlements, traders from both countries are expected to cut down costs, primarily due to the elimination of intermediary bank charges and reduced exchange rate risks.
Several Sri Lankan banks have established Nostro accounts in INR, facilitating direct transactions with Indian counterparts to support the mechanism. Sri Lankan has seen an increasing interest from local banks in opening such accounts. (Colombo/February 28/2025)
