Sri Lanka, India local currency trade mooted

Oct 01, 2010 (LBO) – Using local currencies to trade between India and Sri Lanka could reduce transaction costs and speed up cargo movements, an expert has suggested. “This could lead to win-win situation for both sides and bring down transaction cost and the time taken.”

Under British rule the Indian rupee, then specie based – was widely used in the Middle East and even Africa. Sri Lanka’s own rupee was pegged to the Indian rupee through a currency board.

Even after the creation of the Reserve Bank of India as a private corporation the rupee held its value.

But after independence the rupee lost its value as the monetary system was mis-used to finance deficit budgets after it became a state-run entity. Middle Eastern countries swiftly dumped the Indian rupee and formed their own national currencies.

The Indian rupee started gaining strength after 1991 when a balance of payment crisis changed the country’s monetary policy.

The finance ministry secretary stopped participating in the monetary policy meetings and obligatory deficit financing through printing money ended.

“RBI had become like a cookie jar, where the government, as and when th