Trade between India and Malaysia can now be settled in Indian Rupee in addition to the current modes of settlement, the foreign office announced on Saturday. This follows a decision by the Reserve Bank of India in July last year to allow the settlement of international trade in Indian currency.

The Ministry of External Affairs (MEA) said the RBI's initiative is aimed at stimulating the interest of the global trading community in the Indian Rupee by weaning them off the US dollar. India International Bank of Malaysia, based in Kuala Lumpur, has operationalised it by opening a Special Rupee Vostro Account through its corresponding bank in India, which is the Union Bank of India.

Malaysia is the 27th largest investor in India with foreign direct investment of USD 1,161 million from April 2000 to September 2022. Bilateral trade touched USD 13.86 billion in April-November 2022.

“This new mechanism is also aligned with Malaysia’s foreign exchange policies (FEP) as part of which Malaysian banks are allowed to undertake the settlement of international trade in goods or services in any foreign currency, subject to the rules and regulations of Bank Negara Malaysia,” the Indian High Commission in Kuala Lumpur said.

The mechanism will allow Indian and Malaysian traders to invoice their trade in rupees, though how the Malaysian counterpart would benefit by receiving Indian currency was not immediately clear. At present, Indian exports to Malaysia include machinery, instruments, electronic goods, fresh vegetables and meat.