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India-Sri Lanka discuss ways to settle trade in local currencies to shield from dollar volatility

17 Jun 2026 Evaluate

Aiming to insulate bilateral trade from dollar volatility and lower the transaction costs, India and Sri Lanka have discussed ways to enhance trade settlement in local currencies. The discussions were taken place on event -- 'Rupee to Rupee: Strengthening the India-Sri Lanka Commercial Corridor'. The event, organised by the Indian High Commission in Colombo, brought together representatives from government institutions, banking and financial sector organisations, industry leaders, importers, exporters, and business stakeholders from both countries. The participants discussed opportunities to deepen India-Sri Lanka economic and commercial engagement through enhanced use of local currencies.

Highlighting benefits of local currencies settlement, the Indian High Commissioner, Santosh Jha has said that local currency settlement reduces transaction costs, eliminates conversion losses in both directions. He added that for Sri Lanka specifically, it reduces pressure on scarce hard currency reserves - preserving dollars for uses where they are truly necessary, while rupee-to-rupee trade flows freely between two economies. The discussions highlighted the growing acceptance of the INR-LKR settlement mechanism and its potential to facilitate smoother cross-border transactions, improve liquidity management, lower transaction costs, and enhance resilience in bilateral trade.

Moreover, the discussion emphasised the need for continued awareness-building, stronger banking linkages, and greater private sector participation to unlock the full potential of local currency settlements. Jha has suggested that an Indian bank's branch in Colombo can now lend in Indian rupees to a Sri Lankan importer buying Indian goods, while a Sri Lankan bank can borrow in INR to finance trade with India, without touching the dollar at all. He called it a structural shift in how regional trade finance can work.

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