RBI's big move to boost Rupee for global trade

By Anish Kumar | First Published Jul 11, 2022, 8:20 PM IST

As per the new settlement mechanism, the exports and imports will be denominated and invoiced in rupees, with the exchange rate between the currencies of the two trading countries to be market-determined. Experts believe the move would pave the way for further de-dollarization of the economy and foster trade in Rupees and Rubles.

The Reserve Bank of India on Monday announced an international trade settlement in rupees, a move that would help India trade with countries in its own currency.

The development comes amidst the Western countries imposing a currency ban on Russia in response to its ongoing military operation against Ukraine.

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"In order to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in Indian Rupee, it has been decided to put in place an additional arrangement for invoicing, payment and settlement of exports/imports in Indian Rupee," the Central Bank wrote to all authorised dealer banks.

Under this system, the authorised dealer banks will have to take prior approval from the Foreign Exchange Department of Reserve Bank of India, Central Office in Mumbai.

Experts believe the move would pave the way for further de-dollarization of the economy and foster trade in Rupees and Rubles.

Under this new mechanism, the authorised Indian banks will need to open Special Rupee Vostro Accounts of the partner trading country’s bank in an effort to settle the trade deals.

The Indian importers will have to pay in rupees, which shall be credited into the Special Vostro account of the correspondent bank of the partner country.

Indian exporters undertaking exports of goods and services through this mechanism shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.

Indian firms have been paying in China’s Yuan to Russian business after the US and the West imposed a blanket currencies ban on business dealing.

According to government data, India-US had trade worth $112.6 billion in 2021, consisting of $71 billion in exports and $41 billion in imports.

The data for Russia has been far lower. India had exported $3.3 billion worth of goods to Moscow in 2021, mainly pharmaceutical products, tea and coffee. The imports were valued at $6.9 billion, including defence goods, mineral resources, fertilizers, metals and precious stones.

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