Mauritius & India Team Up to Bypass the Dollar in Trade Transactions

In a transformative move set to redefine trade relations, Mauritius has entered into a historic agreement with India, allowing for the use of Mauritian and Indian rupees in commercial transactions. This pivotal accord follows a similar pact with China, introduced three years earlier, aimed at decreasing reliance on foreign currencies in international trading activities.

The Bank of Mauritius and the Reserve Bank of India have formalised this cooperation through a memorandum of understanding (MoU), which establishes the foundation for conducting cross-border transactions in both currencies.

The primary goal is to reduce dependence on dominant foreign currencies, potentially streamlining trade between the two nations.

The MoU introduces a local currency settlement system (LCS) involving both the Indian rupee (INR) and the Mauritian rupee (MUR).

As asserted by the Bank of Mauritius, this initiative is expected to enhance the currencies of both countries, promoting bilateral trade, direct investments, remittances, and financial market development, ultimately fostering economic growth and stability.

Rama Sithanen, Governor of the Bank of Mauritius, highlighted the advantages of creating a settlement framework in both currencies, claiming that establishing an INR compensation centre will clearly benefit both Mauritius and India.

He emphasised that this initiative will strengthen trade and investment while alleviating the volatility and risks associated with foreign currencies.

Dan Maraye, a former Governor, voiced complete support for the initiative, suggesting it caters to Mauritius’ interests.

However, apprehensions remain among local importers regarding the challenge of securing foreign currency, especially the increasingly scarce US dollar. Anand Ajoodha, director of Funny Traders Co. Ltd, expressed relief at the prospect of settling bills in Mauritian rupees, which he believes will simplify import processes from India.

The pressing question lingers: Can Mauritius realistically pay its import bills to India exclusively in the Mauritian or Indian rupee?

While Maraye is optimistic that at least half of these transactions can be conducted in local currencies, Alexandre Sanchini, CEO of Blue Ship Capital, voiced cautious optimism, noting that only India currently appears willing to accept such an arrangement.

He regards this as a bold step from India, one that could yield positive outcomes for trade, albeit with a need for broader acceptance from trade partners.

Historically, Mauritius has made previous attempts to reduce its dependence on the dollar.

In 2022, the establishment of a Renminbi Clearing Centre aimed to facilitate trade with China without relying on intermediary currencies.

Sanchini pointed out that gauging the overall share of transactions in yuan is challenging.

He noted that the dollar has significantly weakened, adding complexity to the situation.

Past discussions about alternative currency trading have occurred; in 1997, Mauritius and the Reserve Bank of South Africa informally explored trade settlements in rands, but these talks did not come to fruition.

The dollar’s dominance in global trade, established under the Bretton Woods system, necessitates that central banks maintain reserves of the currency.

As economic tensions heighten and the BRICS nations seek to diminish the dollar’s global supremacy, the timing of Mauritius’s agreement with India is crucial.

Economist Sanjay Matadeen remarked that the MoU primarily benefits Mauritius by decreasing its dollar reliance, particularly as the Mauritian rupee depreciates against the dollar.

He advocated for increased trade with India, the attraction of Indian tourists, and the export of Mauritian products and services.

Ultimately, the success of this endeavour will depend on the willingness of businesses to accept payments in rupees.

While there is potential for a full transition to local currencies—especially in government-to-government contracts for vital imports like oil—such a change will hinge on broader acceptance within international trade.

The creation of an INR compensation centre in Mauritius is likewise poised to enhance regional payment frameworks under the Eastern and Southern African Common Market (COMESA).

This initiative will enable commercial banks to maintain INR accounts with the Bank of Mauritius, further solidifying the island’s role in regional trade.

As Mauritius forges ahead in this uncharted territory, it aims to strike a delicate balance with its global partners, positioning itself as a key centre for local currency transactions on the continent.

This ambitious step towards de-dollarisation could usher in a substantial transformation in the island nation’s economic landscape.

Source: Defi Media