Sri Lankan Foreign Minister Ali Sabry said Accepting the Indian rupee would work as an advantage for Sri Lanka as the trade imbalance between the two countries is in favor of India.
Amid the island nation's struggles to build its depleted foreign reserves and to emerge from last year’s unprecedented economic crisis, Sri Lanka is mulling the possibility of allowing the use of the Indian rupee for local transactions, reported AP.
The move to allow the use of India's currency would enable 'tourists and other people from India to directly use Indian rupees here' without going through the hassle of multiple currency conversions, said Sri Lankan Foreign Minister Ali Sabry said Saturday.
According to official figures, the trade between the two nations stood at $5.45 billion in 2021. Sri Lanka imports plenty of items from India including food, pharmaceuticals, construction materials, automobiles, fertilizers, and chemicals.
Accepting the Indian rupee would work as an advantage for Sri Lanka as the trade imbalance between the two countries is in favor of India, Sabry said, “We need more Indian currency, so more Indian people coming here and spending Indian currency is good for us."
Earlier, Sri Lankan president Ranil Wickremesinghe visited India and during the visit, India and Sri Lanka signed a series of energy, development, and trade agreements, signaling growing economic ties between the neighboring countries.
In 2022, India provided critical financial and humanitarian assistance worth over $4 billion to its neighbor, including food, medicine, and fuel. Apart from this, India was also the first creditor to extend a letter of support towards Sri Lanka’s debt restructuring efforts that helped kickstart support from the IMF.
Sri Lanka’s total debt has exceeded $83 billion, of which $41.5 billion is foreign and $42.1 billion is domestic. Sri Lanka has now started the process of restructuring its debt.
Sri Lanka is considering the possibility of allowing the use of the Indian rupee for local transactions. This is in response to the country's ongoing economic crisis, which has led to a shortage of foreign currency.
The move would allow Indian tourists and businesses to use their own currency in Sri Lanka, which would save them the hassle of exchanging their money. It would also help to boost trade between the two countries.
The Sri Lankan government has not yet made a final decision on whether to allow the use of the Indian rupee for local transactions. However, the move is seen as a way to ease the country's economic woes.
Here are some of the benefits of allowing the use of the Indian rupee in Sri Lanka:
It would make it easier for Indian tourists and businesses to visit and do business in Sri Lanka.
It would help to boost trade between the two countries.
It would reduce the demand for foreign currency in Sri Lanka, which would help to stabilize the country's economy.
Of course, there are also some potential drawbacks to allowing the use of the Indian rupee in Sri Lanka. These include:
It could lead to inflation in Sri Lanka, as the rupee is weaker than the Sri Lankan rupee.
It could make it more difficult for Sri Lankan businesses to compete with Indian businesses.
It could lead to a loss of jobs in Sri Lanka, as Indian businesses may be able to undercut Sri Lankan businesses on price.
Overall, the decision of whether or not to allow the use of the Indian rupee in Sri Lanka is a complex one. There are both benefits and drawbacks to consider. The Sri Lankan government will need to weigh these carefully before making a decision.