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Local currencies are expected to play a larger role in cross-border trade and payments as countries look to reduce transaction costs, currency mismatches and settlement-related challenges, RBI Deputy Governor Rohit Jain said. He highlighted the growth in India's foreign exchange reserves and domestic forex market turnover while outlining the factors that could shape the market over the next decade. Jain also stressed the need for wider technology adoption, greater participation by public sector banks and stronger safeguards against unauthorised online forex platforms. He said transparency, efficient settlement and customer protection would remain important as the market expands.
Local currencies will have an increasingly important role in cross-border trade and payments as they can lower transaction costs, reduce currency mismatches and improve settlement efficiency, RBI Deputy Governor Rohit Jain said.
Speaking at the Annual Day of the Foreign Exchange Dealers' Association of India (FEDAI) last week, Jain said India's forex market would need to continuously evolve to support the country's growing engagement with other economies and respond to changing market requirements.
He said a well-prepared forex market should be able to support India's increasing international engagement, absorb shocks without disruption, serve smaller users as efficiently as large participants and adopt new technology while maintaining trust.
India's foreign exchange reserves have increased from about USD 38 billion in 2000 to USD 691 billion in 2026, Jain said. Average daily turnover in the domestic forex market, including spot and derivatives, has also doubled from USD 41 billion in FY22 to around USD 80 billion currently.
Jain identified greater use of local currencies as one of the key factors that will shape India's forex market in the coming decade. The Special Rupee Vostro Account (SRVA) framework, which enables international trade to be invoiced, paid for and settled in Indian rupees, has been introduced in response to changing international trade patterns.
He said the effectiveness of the framework would depend on commercial viability, greater use of local currencies for trade settlement, market-determined exchange rates and confidence in the settlement system.
Jain said settling cross-border transactions in local currencies can reduce transaction costs and currency mismatches while improving settlement efficiency. It can also support trade in markets where correspondent banking services are expensive or restricted.
Technology will be another important factor in the development of the forex market, he said, adding that transactions should become digital from origination through reporting.
Jain said artificial intelligence and machine learning could help with document classification, anomaly detection and identifying inconsistencies in reporting. However, he stressed that accountability would continue to rest with people and institutions.
He also pointed to gaps in market participation. Public sector banks, which have strong relationships with MSMEs and smaller companies outside major cities, have relatively low participation in forex derivatives compared with their balance sheet size.
Jain said expanding the market-maker base, increasing participation by public sector banks and encouraging electronic trading platforms should be priorities.
He also raised concerns about unauthorised entities offering online forex trading outside the regulatory framework under FEMA and electronic trading platform regulations. The RBI continues to receive complaints of fraud and cheating from customers who were unaware that the platforms they used were unauthorised.
The RBI's Alert List, cautionary advisories and public awareness campaigns are intended to address the issue from the regulatory side. Jain said banks and FEDAI members also have an important role in informing customers and employees about the risks associated with unauthorised platforms.
He said customers should understand the requirements, cost and expected time involved before entering into a transaction, as well as know where to seek assistance if something goes wrong.
Jain also called on FEDAI to focus on technology that can make transactions simpler, improve reporting accuracy and strengthen controls, while helping individuals and smaller businesses access transparent platforms and practical hedging solutions.
Source PTI
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