Rupee Trade Mechanism: Banks Wary Of US Sanctions

Published on February 24, 2023
Current Context:  Banks with exposure to the US are scared of sanctions and there is a lack of clarity about the International Trade Settlement mechanism in rupees (INR) that was established by RBI last year to facilitate trade with sanctioned countries like Russia.
Rupee Trade Mechanism: Banks Wary Of US Sanctions
  • The Rupee Trade Mechanism can benefit India's trade relations by expanding its trade with countries facing shortage of US dollars, arresting the slide in the value of INR against USD, and paving the way for INR's acceptance as a global currency. 
  • However, some challenges remain such as lack of clarity among banks, risk of US sanctions, volatility of exchange rates, and limited scope of bilateral trade.
  • US sanctions are economic measures that restrict or prohibit trade with certain countries or entities that are deemed to be violating international norms or US interests.
  • India's trade partners such as Iran and Russia have been subject to US sanctions for various reasons, such as Iran's nuclear program and Russia's annexation of Crimea.
  • This affects India's trade relations because it limits India's access to oil, weapons, and other goods from these countries, and also exposes India to the risk of US sanctions if it continues to trade with them.
  • For example, recently, an Indian petrochemical company was sanctioned by the US for allegedly buying Iranian oil products for sale in China.

Question:

Q.1 What is one possible consequence of US sanctions for Hong Kong’s political leaders and their families?
a. Bank account closures
b. Credit card cancellations 
c. Blocked payments 
d. All of the above

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