KUALA LUMPUR (Dec 5): Bank Negara Malaysia (BNM) is currently fine-tuning a proposal from the Reserve Bank of India (RBI) to develop a Local Currency Settlement Framework (LCSF) to enhance the use of the ringgit and Indian rupee in bilateral trade, said the Ministry of Investment, Trade and Industry (Miti).
The ministry said that this effort is expected to support and strengthen bilateral trade growth between Malaysia and India, while also expanding opportunities for entrepreneurs and investors in both countries.
It informed that the implementation of trade in rupees could potentially have a positive impact on trade between the two countries, due to a reduction in the dependency on the US dollar.
"Directly, it could reduce foreign currency transaction costs, which would in turn lead to more competitive pricing of goods," it said in a written response on the Dewan Negara website on Thursday.
The ministry responded to a question from Senator Datuk A Kesavadas Nair on whether trading in rupees would reduce the cost and price of goods following the success of Prime Minister Datuk Seri Anwar Ibrahim's visit to India, which secured an investment commitment of RM4.5 billion.
Quoting data from BNM, Miti said that the implementation of bilateral trade in goods and services settled in the ringgit and rupee increased from 4.4% in 2022 to 4.8% in 2023.
It said that on July 11, 2022, the RBI issued a circular which required Indian banks to provide mechanisms for invoicing, payments, and settlement of trade in rupees.
"Aligning with the RBI initiative, BNM informed that trade between Malaysia and India can be settled in rupees, and the India International Bank Malaysia is the first bank in Malaysia to implement this mechanism through the opening of a Special Rupee Vostro Account with the Union Bank of India.
"Following this, Indian companies are encouraged to conduct transactions in ringgit through appointed overseas offices appointed by BNM in India," it said.
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