Indian banks are telling traders to denominate letters of credit (L/Cs) in US dollars rather than euros.

The banks are concerned about potential losses given the current volatility of the European currency.

Euros out

The euro has reportedly all but disappeared from India's foreign exchange market as its trade with the rest of the world has returned to using the US dollar.

Now there are no euro trades and all interbank settlement is now transacted in US dollars, according to the chief foreign exchange officer at the Clearing Corporation of India, Indrani Rao.

Currency shifts

The US debt crisis in 2008 prompted a substantial shift to euro-denominated L/Cs, and at one stage euro trade volumes in India's domestic foreign exchange markets comprised at least 25 per cent of the overall trade volume.

Traders now say that banks are insisting on US dollar invoicing as a precondition for L/C acceptance.

They say banks are no longer interested in receiving euro-invoiced L/Cs, since a depreciation of the European currency would leave them with significant losses.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.