The Government of Sri Lanka approved Indian Rupee as an international currency. After which now trade between India and Sri Lanka will be possible in Indian currency. But, the Indian currency will not be used for domestic transactions in the island nation. The Central Bank of Sri Lanka made this clear on Wednesday. The Central Bank has clearly stated that no domestic transactions with the Indian rupee will be allowed in the island nation. Along with this, he has also warned people not to be misled by the wrong information related to this issue.
The apex bank said that even though the Indian Rupee (INR) has been endorsed as a designated foreign currency, it is not a legal tender in Sri Lanka for domestic payments. The central bank issued a statement saying that any transaction between residents of Sri Lanka would be in the Lankan rupee. This currency is legal tender in Sri Lanka. In the statement, the Sri Lankan bank said that the Indian rupee was designated as a foreign currency in Sri Lanka in August 2022.
It also states that trade between Sri Lanka and India has grown rapidly after the India-Sri Lanka Free Trade Agreement came into force in March 2000. Keeping in view the growing economic activities between the two countries, the Central Bank of Sri Lanka has conveyed to the RBI several times that it intends to authorize the Indian currency as a designated foreign currency.
Let us inform this statement has come after the official visit of Sri Lankan President Ranil Wickremesinghe to India. During his visit to India, Ranil Wickremesinghe interacted with the top Indian leadership including Prime Minister Narendra Modi. The Sri Lankan bank has also enumerated the benefits of recognizing the Indian rupee as a foreign currency. The bank said that banking transactions denominated in the Indian rupee will bring convenience to small-scale traders.
When two countries import and export goods, they have to pay in US dollars because the US dollar is the reserve currency of the world. For example, if India has to buy any goods from Germany then India has to convert its currency Rupee to US Dollar and then the payment will be done. At the same time, Germany will also have to convert the amount received in payment into its currency. This would result in both countries paying a conversion fee and also facing the risk of fluctuating US dollar prices. Now India will have the advantage of trading in its currency and will not have to face the risk of conversion charges and dollar price fluctuations.