India and UAE to promote use of local currencies
GS Paper - 2 (International Relations)
India and the United Arab Emirates (UAE) have signed a pact to establish a framework to promote the use of the rupee and UAE Dirham (AED) for cross-border transactions. The MoU on establishing a framework for the use of local currencies for transactions between India and the UAE aims to put in place a Local Currency Settlement System to promote the use of INR (Indian rupee) and AED (UAE Dirham) bilaterally, the RBI said. The MoU covers all current account transactions and permitted capital account transactions.
More about the mechanism
The framework for the use of local currencies for transactions between India and the UAE aims to put in place a Local Currency Settlement System (LCSS).
The creation of the LCSS would enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-AED foreign exchange market.
This arrangement would also promote investments and remittances between the two countries.
The use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE.
New Delhi is likely to use this mechanism to pay for crude oil as well as other imports from the UAE, which is currently made in US dollars. India is the third largest oil importer in the world and the UAE was its fourth biggest supplier of crude last year.
The RBI had last year announced a framework for settling global trade in rupees, primarily targeting trade with Russia. But this is yet to take off in a substantive manner.
Impact of the move
Bilateral trade between India and the UAE was around $85 billion in FY23. New Delhi is looking to work out a way to hedge exchange rate risks in the rupee-based trade to limit losses for Indian exporters.
The move to ink the pact with the UAE is part of a concerted policy effort by India to internationalise the rupee to bring down the dollar demand as a means to insulate the domestic economy from global shocks.
Government had earlier indicated that apart from Russia, countries in Africa, the Gulf region, Sri Lanka and Bangladesh had also expressed interest in trading in rupee terms.
The RBI’s plan to settle international trade in the local currency will let importers make payments in the rupee, which will be credited to the special account of the correspondent bank of the partner country, while exporters will be paid from the balances in the designated special account.
The Central bank is also in the process of issuing a Standard Operating Procedure to all banks so that e-BRC (electronic bank realisation certificate) becomes easy to use.
#upsc #news #india #uae #pact #inr #aed #mou #lcss #crudeoil #oilimporter #bilateral #trade
GS Paper - 2 (International Relations)
India and the United Arab Emirates (UAE) have signed a pact to establish a framework to promote the use of the rupee and UAE Dirham (AED) for cross-border transactions. The MoU on establishing a framework for the use of local currencies for transactions between India and the UAE aims to put in place a Local Currency Settlement System to promote the use of INR (Indian rupee) and AED (UAE Dirham) bilaterally, the RBI said. The MoU covers all current account transactions and permitted capital account transactions.
More about the mechanism
The framework for the use of local currencies for transactions between India and the UAE aims to put in place a Local Currency Settlement System (LCSS).
The creation of the LCSS would enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-AED foreign exchange market.
This arrangement would also promote investments and remittances between the two countries.
The use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE.
New Delhi is likely to use this mechanism to pay for crude oil as well as other imports from the UAE, which is currently made in US dollars. India is the third largest oil importer in the world and the UAE was its fourth biggest supplier of crude last year.
The RBI had last year announced a framework for settling global trade in rupees, primarily targeting trade with Russia. But this is yet to take off in a substantive manner.
Impact of the move
Bilateral trade between India and the UAE was around $85 billion in FY23. New Delhi is looking to work out a way to hedge exchange rate risks in the rupee-based trade to limit losses for Indian exporters.
The move to ink the pact with the UAE is part of a concerted policy effort by India to internationalise the rupee to bring down the dollar demand as a means to insulate the domestic economy from global shocks.
Government had earlier indicated that apart from Russia, countries in Africa, the Gulf region, Sri Lanka and Bangladesh had also expressed interest in trading in rupee terms.
The RBI’s plan to settle international trade in the local currency will let importers make payments in the rupee, which will be credited to the special account of the correspondent bank of the partner country, while exporters will be paid from the balances in the designated special account.
The Central bank is also in the process of issuing a Standard Operating Procedure to all banks so that e-BRC (electronic bank realisation certificate) becomes easy to use.
#upsc #news #india #uae #pact #inr #aed #mou #lcss #crudeoil #oilimporter #bilateral #trade
Today's Headlines - 24 August 2023
Poor nations forced to rely on fossil fuels
GS Paper - 3 (Energy)
Poor countries with heavy debts have been forced to continue to rely on fossil fuels for generating revenue to return the loans taken from richer countries and private lenders to meet various economic exigencies like the pandemic three years ago, a new report said. These countries, mostly in the global south, may find it impossible to phase out fossil fuels and transition to renewable energy as revenues from fossil fuel projects “are often overinflated and require huge investments to reach expected returns, leading to further debt”.
What is the “debt-fossil fuel trap”?
The report, ‘The Debt-Fossil Fuel Trap’, published on 21 August 2023 by the anti-debt campaigners Debt Justice and partners in affected countries.
The global south — a term used for developing, less developing and underdeveloped countries, located in Africa, Latin America, and Asia — countries are increasingly being burdened by enormous debts in recent years.
Their “external debt payments (money borrowed from richer countries, or multilateral creditors like the World Bank and IMF, or private lenders such as banks) has gone up by 150% between 2011 and 2023, reaching their highest levels in 25 years”, said the report.
Moreover, 54 countries are in a debt crisis — they had to cut their public sending budgets during the pandemic to repay the loans, the analysis found.
The situation is worsened by extreme weather events, which force these countries to borrow more money as they lack adequate finances and resources for adaptation, mitigation and tackling loss and damage.
For instance, Dominica’s debt as a percentage of GDP rose from 68% to 78% after Hurricane Maria hit the island in 2017.
To deal with the mounting debts, these countries have turned to extracting more fossil fuels.
The country’s strategy to reduce debt may end up adding to debt levels without generating adequate revenue to repay, which could force Argentia to further expand its fossil fuel projects, the report added. This is known as the “debt-fossil fuel trap”.
Ending the high debt burdens
The report has laid out a few recommendations to help global south countries exit the “debt-fossil fuel trap”.
It said clean energy, wealthy governments and institutions must implement “ambitious debt cancellation for all countries that need it, across all creditors, free from economic conditions.
They should also stop accepting repayments made through fossil fuel projects’ revenue.
Meanwhile, “Bilateral and multilateral finance should be aligned with a 1.5 degree warming scenario and fair shares calculations, and not be used to finance fossil fuels.
#upsc #news #headline #nations #fossilfuels #energy #countries #revenue #pandemic #globalsouth #fuel #trap #africa #latin #worldbank #IMF #payments #GDP #island #dominica #strategy #projects #warming #bilateral #multilateral #finance #fairshares #america #asia #justice #renewable #poornations #forced
Poor nations forced to rely on fossil fuels
GS Paper - 3 (Energy)
Poor countries with heavy debts have been forced to continue to rely on fossil fuels for generating revenue to return the loans taken from richer countries and private lenders to meet various economic exigencies like the pandemic three years ago, a new report said. These countries, mostly in the global south, may find it impossible to phase out fossil fuels and transition to renewable energy as revenues from fossil fuel projects “are often overinflated and require huge investments to reach expected returns, leading to further debt”.
What is the “debt-fossil fuel trap”?
The report, ‘The Debt-Fossil Fuel Trap’, published on 21 August 2023 by the anti-debt campaigners Debt Justice and partners in affected countries.
The global south — a term used for developing, less developing and underdeveloped countries, located in Africa, Latin America, and Asia — countries are increasingly being burdened by enormous debts in recent years.
Their “external debt payments (money borrowed from richer countries, or multilateral creditors like the World Bank and IMF, or private lenders such as banks) has gone up by 150% between 2011 and 2023, reaching their highest levels in 25 years”, said the report.
Moreover, 54 countries are in a debt crisis — they had to cut their public sending budgets during the pandemic to repay the loans, the analysis found.
The situation is worsened by extreme weather events, which force these countries to borrow more money as they lack adequate finances and resources for adaptation, mitigation and tackling loss and damage.
For instance, Dominica’s debt as a percentage of GDP rose from 68% to 78% after Hurricane Maria hit the island in 2017.
To deal with the mounting debts, these countries have turned to extracting more fossil fuels.
The country’s strategy to reduce debt may end up adding to debt levels without generating adequate revenue to repay, which could force Argentia to further expand its fossil fuel projects, the report added. This is known as the “debt-fossil fuel trap”.
Ending the high debt burdens
The report has laid out a few recommendations to help global south countries exit the “debt-fossil fuel trap”.
It said clean energy, wealthy governments and institutions must implement “ambitious debt cancellation for all countries that need it, across all creditors, free from economic conditions.
They should also stop accepting repayments made through fossil fuel projects’ revenue.
Meanwhile, “Bilateral and multilateral finance should be aligned with a 1.5 degree warming scenario and fair shares calculations, and not be used to finance fossil fuels.
#upsc #news #headline #nations #fossilfuels #energy #countries #revenue #pandemic #globalsouth #fuel #trap #africa #latin #worldbank #IMF #payments #GDP #island #dominica #strategy #projects #warming #bilateral #multilateral #finance #fairshares #america #asia #justice #renewable #poornations #forced