CEAI Urges RBI to Stop Routing Foreign Currency Deals via US Banking System
The Consulting
Engineers Association of India (CEAI) has urged the Reserve Bank of India (RBI)
to intervene and ensure that foreign currency transactions within the country
are not routed through the US banking system. This is to avoid transaction fees
and save foreign currency.
Currently, a
transaction fee is levied on US Dollar transactions within the country. Payment in US dollars from one entity to another in India is required to be
undertaken through the US banking system. By routing transactions through the
American banking system, the country is losing substantial money, which is
going toward transaction costs.
K.K. Kapila,
former president of CEAI, has called this situation peculiar, as it requires
one of the banks from India to send dollars to the US to get them back in
another bank in India. As long as transactions are being carried out in US
dollars within India, there should be no transaction cost payable to the US.
The situation
requires an urgent correction, as the country is losing valuable foreign
exchange every day. If routing foreign currency transactions through the US
banking system is part of some trade agreement, it needs an urgent relook. It should
be addressed as the top priority by the RBI.
The RBI should
bring in this correction immediately, lest the country continues to lose the valuable foreign exchange. It is fully understood that US transactions to
countries other than India have to continue via the US. Still, RBI should not
continue to have internal transactions within the country via the US. If any
amendment to existing agreements signed between the two nations is required,
the Indian government should take it up logically and get this agreement
revised, showing them the merits of moving dollars within our country from one
branch to another without routing them through the US.
The CEAI is
concerned about the banking sector, as this particular scenario is causing a
significant loss to the country. It is believed that by routing transactions
through the American banking system, the country is losing a considerable
amount of money. The association is urging the RBI to address this issue on an
urgent basis, and if necessary, amend any existing agreements signed between
the two countries.
The issue is
not new, as earlier, the RBI's currency intervention ended up hurting the rupee
carry trade. As per reports, the number of deals was down 42% in October, but
it matches pre-pandemic levels. Experts suggest that currency swaps can be an
alternative to routing transactions through the US banking system. It can help
reduce transaction costs and save foreign currency.
The CEAI's
plea to the RBI is to stop routing foreign currency deals via the US banking system
to avoid transaction fees and save foreign currency. The RBI should address
this issue urgently, and if necessary, amend any existing agreements signed
between India and the US. It is time to save valuable foreign exchange by
finding alternative solutions to routing transactions through the American
banking system.