The RBI and Bank Indonesia MoU covers all current account transactions, permissible capital account transactions and any other economic and financial transactions as agreed upon by both countries. 
| Photo Credit: Reuters

The Reserve Bank of India (RBI) and the Bank Indonesia (BI) signed a Memorandum of Understanding (MoU) on March 7 in Mumbai for establishing a framework to promote the use of local currencies viz., the Indian Rupee (INR) and the Indonesian Rupiah (IDR) for cross-border transactions. The MoU was signed by the Reserve Bank of India governor Shaktikanta Das and the Bank Indonesia governor Perry Warjiyo.

The MoU on establishing a framework for cooperation in the area of cross-border transactions in local currencies between India and Indonesia, aims to promote the use of INR and IDR bilaterally.

The MoU covers all current account transactions, permissible capital account transactions and any other economic and financial transactions as agreed upon by both countries.

This framework would enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-IDR foreign exchange market.

“Use of local currencies would optimise costs and settlement time for transactions,” the RBI said in a statement.

“Use of local currencies in bilateral transactions will eventually contribute to promoting trade between India and Indonesia as well as deepen financial integration and strengthen the long historical, cultural and economic relations between India and Indonesia,” the statement added.

Reserve Bank of India Governor Shaktikanta Das. File
| Photo Credit: EMMANUAL YOGINI

“With India’s current account deficit (CAD) declining sharply to 1% of GDP in Q2:2023-24 from 3.8% in Q2:2022-23,” RBI Governor Shaktikanta Das on February 8 said going ahead, the net balance under services and remittances would remain in large surplus, partly offsetting the trade deficit. 

“India’s services exports remained resilient in October-December 2023, driven by software, business and travel services. Moreover, with around 10.2% share in world telecommunications, computer and information services exports, India is a significant player in the world software business,” Mr. Das said in his statement. 

He said according to the World Bank, with an estimated $135 billion in inward remittances in 2024, India would remain the largest recipient of remittances globally.

On the financing side, Mr. Das said the net foreign direct investment (FDI) stood at $13.5 billion in April-November 2023 as compared with $19.8 billion a year ago.

“Foreign portfolio investment (FPI) witnessed a sharp turnaround during 2023-24 (up to February 6) with net FPI inflows of $32.4 billion as against net outflows of $6.7 billion a year ago,” he said. 

“Net accretions to non-resident deposits and net inflows under external commercial borrowings were also higher during the year,” he added. 

“As on February 2, 2024, India’s foreign exchange reserves stood at $622.5 billion .46 Vulnerability indicators suggest greater resilience of India’s external sector. We are confident of comfortably meeting all our external financing requirements,” he further said. 

Reserve Bank of India Governor Shaktikanta Das. File
| Photo Credit: PTI

Digital Rupee users will soon be able to execute transactions in areas with limited internet connectivity as the Reserve Bank of India (RBI) on February 8 announced that offline capability will be introduced on the Central bank digital currency (CBDC) pilot project.

RBI Governor Shaktikanta Das said that programmability-based additional use cases will be introduced as part of the pilot project. RBI launched a pilot of the retail CBDC in December 2022 and achieved the target of having 10 lakh transactions a day in December 2023.

It can be noted that other payment platforms, especially the very popular Unified Payments Interface (UPI), already offer offline possibilities.

“It is proposed to introduce an offline functionality in CBDC-R (Retail) for enabling transactions in areas with poor or limited internet connectivity,” Mr. Das said while announcing the bimonthly monetary policy review.

He said multiple offline solutions, which include both proximity and non-proximity based ones, will be tested across hilly areas, rural and urban locations for the purpose.

On the programmability front, he said that currently, the system enables Person to Person (P2P) and Person to Merchant (P2M) transactions using digital rupee wallets provided by pilot banks.

“It is now proposed to enable additional use cases using programmability and offline functionality,” he said.

“The programmability feature will permit users such as government agencies to ensure that payments are made for defined benefits,” he said, adding that corporates will also be able to programme specified expenditures like business travel for their employees.

“Additional features such as validity period or geographical areas within which CDBC may be used can also be programmed,” he said.

Meanwhile, Mr. Das also announced RBI’s intent to enhance the security features of Aadhaar enabled Payment Systems (AePS), which was used by 37 crore people in 2023.

“To enhance the security of AePS transactions, it is proposed to streamline the onboarding process, including mandatory due diligence, for AePS touch point operators, to be followed by banks,” Mr. Das said, adding that instructions on the same will be issued shortly.

At present, Mr. Das said lenders are using the SMS method for complying with the additional factor authentication requirements but advancements in technology have opened up newer means.

“To facilitate the use of such mechanisms for digital security, it is proposed to adopt a principle-based “Framework for authentication of digital payment transactions”,” he said.