RBI allows global trade settlement in rupee

In a move that will facilitate transactions with Russia which is facing Western sanctions and is cut off from the global payments system ever since its war on Ukraine, the Reserve Bank of India on Monday allowed invoicing and payments for international trade in rupee.

"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. Before putting in place this mechanism, AD banks shall require prior approval from the Foreign Exchange Department of RBI, Central Office at Mumbai," RBI says.

The RBI also outlined the broad framework for cross border trade transactions in INR under Foreign Exchange Management Act, 1999 (FEMA). As per the framework, all exports and imports under this arrangement may be denominated and invoiced in rupee (INR), exchange rate between the currencies of the two trading partner countries may be market determined and the settlement of trade transactions under this arrangement would take place in INR in accordance with the procedure laid down.

On settlement, RBI says, "In terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, AD banks in India have been permitted to open Rupee Vostro Accounts. Accordingly, for settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country," it says.

"Indian importers undertaking imports through this mechanism shall make payment in INR 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/supplier," it adds.

"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," RBI adds.