The Ministry of External Affairs declared that trade between India and Malaysia can now be conducted using the Indian Rupee (INR) as a mode of exchange, in addition to other currencies.

This announcement follows the launch of the Foreign Trade Policy (FTP) 2023 which reaffirmed the government's determination to establish the rupee as a global currency. This step is expected to boost bilateral trade between the two countries.

Significance of India, Malaysia Trade in Indian Rupee:

The decision to trade in local currencies is part of a broader trend toward currency swap agreements between countries. These agreements are aimed at reducing the reliance on the US dollar. The use of local currencies can also help reduce local currency risk for businesses and encourage greater economic integration between countries.

As in the case of India and Malaysia, the move to trade in local currencies is significant as both share a long history of trade and investment ties and bilateral trade as well. However, much of the trade in the past was conducted through the US dollar which created additional transaction costs and risks in businesses.

This will help small and medium-sized enterprises which may not have the resources to manage currency risk effectively.

The agreement between India and Malaysia opens a window for more agreements between the countries as both of them are key players in South Asia and South East Asia respectively.

Concerns such as the issue of greater volatility in exchange rates as there are fluctuations in the currency as well. It can also create additional complexity and administrative burden for businesses.

Nevertheless, the agreement is positive for the overall region. It shall help in reducing transaction costs and currency risk for businesses.

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Reference:

• current affairs.adda247.com