RBI: Mechanism for International trade in rupees (INR)

On July 11, 2022 the Reserve Bank of India (RBI) notified new measures to settle down “international trades in rupee”. This move will promote global trade and emphasise on exports from India.

About the new mechanism

  • RBI has announced new mechanism for the purpose of invoicing, payment, as well as settlement of exports or imports in rupee. Thus, under the new mechanism, all the exports and imports can be denominated and invoiced in rupee.
  • However, to make payment in rupees, banks will need to take prior approval from foreign exchange department of RBI.
  • It will also address issues associated with invoicing, exchange rate and settlement.
  • Thorough this mechanism, exchange rate between 2 currencies can be determined by market.

How can trade transactions be settled?

To settle down the trade transactions, banks need a “Special Rupee Vostro Accounts” of correspondent bank of partner trading country. If the Indian importers undertakes imports under this mechanism, he shall make payment in INR. This amount will have to be credited into Special Vostro account of the correspondent bank in foreign country, to settle down the invoices for supply of goods or services from overseas seller or supplier. Exporters opting for overseas shipments of goods & services under this mechanism, will be paid in Indian rupees from the balances in Special Vostro account, for export proceeds.

What about the surplus balance?

  • Rupee surplus balance held with the banks can be utilised for permissible capital and current account transactions in line with mutual agreement.
  • Balance in special vostro accounts can be diverted to make payments for projects & investments, investment in government bonds and in export or import advance flow management.

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