RBI Launches Mechanism To Settle International Transactions In Indian Rupees
In order to promote global trade with emphasis on exports from India, on Monday, Reserve Bank of India (RBI) announced certain measures to settle international trades in rupee.
The All New “INR” Settlement
The central bank said in its official statement that to promote growth with emphasis on exports as well as to support the increasing interest of global trading community in rupee, the decision has been taken to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in rupee.
Or in simpler words, all the exports as well as imports under this arrangement may be denominated and invoiced in rupee.
The circular added that for this to be done, banks will require prior approval from the foreign exchange department of RBI.
Issues related to the invoicing, exchange rate as well as settlement shall also be addressed by the new mechanism.
Besides this the exchange rate between 2 currencies may be determined by the market.
How Will It Work?
The concerned banks will require Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country for the settlement of trade transactions.
In accordance with the mutual agreement the rupee surplus balance held can be used for permissible capital and current account transactions as per the circular.
It added that for the payments for projects and investments; export/import advance flow management; and investment in government bonds the balance in the special vostro accounts can be used.
It said that the against the invoices for the supply of goods or services from the overseas seller /supplier, the Indian importers will make the payment in INR which will be credited into the Special Vostro account of the correspondent bank of the partner country.
From the balances in the designated Special Vostro account, the exporters who are exporting the goods and services through this mechanism will be paid the export proceeds in Indian rupees.
This will also enable the Indian exporters to receive advance payment against exports from overseas importers in rupees.
Banks will make sure that the available funds in these accounts shall first be used to complete the payment obligations of the previous executed export orders/export payments in the pipeline. Only after the previous executed payment obligations are completed, can an individual use such receipt of advance payment against exports.