India, Mauritius join hands to trade in local currencies

Central banks of India and Mauritius have signed an MoU to enable the use of local currencies for trade.

The agreement was to establish a framework to promote trade in the local currencies of both countries.

The MoU documents were exchanged in the presence of Prime Minister Narendra Modi and Mauritius counterpart Navinchandra Ramgoolam on March 12, 2025. PM Modi was on a state visit to the island nation, RBI confirmed on Tuesday in a post on X.

The MoU will culminate in the implementation of the INR-MUR Local Currency Settlement (LCS) System to reduce dependency on hard currencies for cross-border transactions.

The LCS will help Mauritius and India further develop their respective exchange markets and facilitate bilateral trade and settlement, direct investment, remittances, financial market development, economic growth and stability. The LCS will promote the use of the INR and MUR for all current account transactions and permissible capital account transactions between India and Mauritius.

The MoU also provides for cooperation to create an INR Clearing Centre in Mauritius, and the inclusion of the INR as a settlement currency in the Mauritius Automated Clearing and Settlement System. As such, commercial banks would be able to hold an account in INR at the Bank of Mauritius for transactions in INR.

The INR clearing Centre will ultimately be extended to the Common Market for Eastern and Southern Africa’s Regional Payment and Settlement System (COMESA), for which the Bank of Mauritius is the settlement bank. It is proposed that the INR be included as a settlement currency. This initiative will promote Mauritius as a jurisdiction for clearing and settlement in INR on the continent.

The two leaders had agreed to facilitate trade settlements in local currencies–Indian Rupee and Mauritian Rupee–which would help derisk bilateral trade.

The Reserve Bank of India has occasionally cleared the way for trade using local currencies, Indian Rupees (INR), by allowing authorized banks in India to open Special Rupee Vostro Accounts (SRVA) of correspondent banks of the trading partner.

Banks from several countries have opened special Rupee vostro accounts in Indian banks to trade in local currencies. Simply put, vostro accounts enable domestic banks to provide international banking services to clients with global banking needs.

The Reserve Bank of India implemented an arrangement allowing transactions in domestic currencies in 2022 to promote the growth of global trade, with an emphasis on exports from India, and to attract increasing interest in the rupee.

India has been working towards making the Indian Rupee a global currency and allowing international trade settlement. This mechanism will help in internationalizing the Indian currency in the long run. A currency can be termed “international” if it is widely accepted worldwide as a medium of exchange.

So far, India has been able to do rupee-denominated trade with a few countries and, understandably, is in close coordination with several others to fructify it.