India and Sri Lanka are exploring greater use of local currencies for bilateral trade settlement, a move aimed at reducing transaction costs, minimizing currency risks and shielding trade flows from fluctuations in the US dollar.
Speaking at a round-table discussion titled “Rupee to Rupee: Strengthening the India-Sri Lanka Commercial Corridor” in Colombo, Indian High Commissioner Santosh Jha said local currency settlement offers significant benefits for businesses in both countries. He noted that trading directly in Indian rupees and Sri Lankan rupees can eliminate conversion losses, lower transaction expenses and reduce dependence on the dollar.
Jha emphasized that for Sri Lanka, the mechanism can also help conserve scarce foreign exchange reserves by limiting the need for dollar transactions and allowing bilateral trade to be conducted directly in local currencies.
The event, organized by the Indian High Commission, brought together government officials, bankers, industry representatives, importers and exporters to discuss ways to deepen economic engagement through enhanced use of local currency settlements.
Highlighting the challenges of dollar-based trade, Jha said businesses on both sides currently face unnecessary currency risks and conversion costs when transactions are routed through a third-country currency. He added that expanding local currency trade would make cross-border commerce more efficient and resilient.
Representatives from the State Bank of India and Indian Bank outlined operational aspects of INR-LKR trade settlements, available banking solutions and recent policy measures that permit Indian rupee-denominated loans to be disbursed through authorized dealer banks in Sri Lanka.
Participants noted the growing acceptance of the INR-LKR settlement framework, which is expected to facilitate smoother transactions, improve liquidity management and strengthen bilateral trade ties.
Jha described the latest developments as a “structural shift” in regional trade finance, pointing out that Indian banks operating in Sri Lanka can now extend rupee-denominated credit to local importers purchasing Indian goods, while Sri Lankan banks can borrow in Indian rupees to finance trade with India without relying on the US dollar.
