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How RBI's Rupee Trade Settlement Will Function To Create Demand For Indian Currency

Under the new international trade settlement norms all exports and imports will be invoiced in Indian rupee and the exchange rates between the trading partners will be market determined

How RBI's Rupee Trade Settlement Will Function To Create Demand For Indian Currency
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The Reserve Bank on Monday asked banks to put in place additional arrangements for export and import transactions in Indian rupees in view of increasing interest of the global trading community in the domestic currency. 

Before putting in place this mechanism, banks will require prior approval from the Foreign Exchange Department of the Reserve Bank of India (RBI), the central bank said in a circular. 

"In order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in INR," it said. 

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How Will International Trade Settlement In Indian Rupee Work 

Under the new international trade settlement norms all exports and imports will be invoiced in Indian rupee and the exchange rates between the trading partners will be market determined, according to RBI. 

The RBI said for settlement of trade transactions, the concerned banks will require Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country. 

The authorised dealer banks in India have been allowed to open Rupee Vostro Accounts and for settlement of trade transactions authorised dealer banks will open Special Rupee Vostro Accounts of correspondent banks of the partner trading country. 

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As per RBI norms an Indian importers undertaking imports through this mechanism shall make payment in rupee which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller. Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in rupee from the balances in the designated Special Vostro account of the correspondent bank of the partner country. 

This mechanism may enable Indian exporters to receive advance payment against exports from overseas importers in rupees. 

Exporters may receive advance payment against exports from overseas importers in Indian rupees. However, before allowing any such receipt of advance payment against exports, Indian Banks shall ensure that available funds in these accounts are first used towards payment obligations arising out of already executed export orders in the pipeline, RBI noted. 

Trades undertaken and settled in this manner will be subject to usual documentation and reporting requirements. Letter of Credit (LC) and other trade related documentation may be decided mutually between banks of the partner trading countries.
 

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