[ad_1]
The Reserve Bank of India (RBI) launched a rupee settlement system for global trade, according to a notification on Monday.
The RBI’s move was aimed at promoting growth of global trade and to support increasing global interest in the rupee, comes amid increasing pressure on the Indian currency in the wake of Russia-Ukraine war.
According to a release by the central bank, 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 Reserve Bank of India, Central Office in Mumbai.
For more details:
International Trade Settlement in Indian Rupees (INR)https://t.co/7otDJA7tbU
— ReserveBankOfIndia (@RBI) July 11, 2022
Banks have to take RBI’s approval to have a mechanism for dealing in such transactions. “Exchange rate between the currencies of the two trading partner countries may be market determined,” said the RBI.
Moreover, the move to facilitate trade settlement in rupees could also allow India to bypass certain orders that prevent the use of a global currency such as the US dollar for trade with certain countries.
For example, Russia’s invasion on Ukraine has seen several countries impose sanctions on Moscow, with the US cutting off Russia’s access to the dollar. This has made Indian companies, looking to take advantage of the lower price of Russian commodities, consider alternative modes of payment for imports.
According to the new mechanism, exports and imports under the arrangement will be denominated and invoiced in rupees with the exchange rate between the currencies of the two trading partner countries to be market determined.
The bank of a partner country may approach an AD bank in India for opening of Special INR VOSTRO account. The AD bank will seek approval from the Reserve Bank with details of the arrangement. AD bank maintaining the special Vostro Account shall ensure that the correspondent bank is not from a country or jurisdiction in the updated FATF Public Statement on High Risk & Non Co-operative Jurisdictions on which FATF has called for counter measures.
Indian exporters, on the other hand, will be paid in rupees from the balance in the designated special vostro account of the correspondent bank of the partner country. The exporters can also be paid in advance in rupees under this mechanism. However, before such advance payment is made, banks must ensure that funds available in the concerned accounts are first used to make payments for those export orders that have already been executed.
The notification stated that the above instructions shall come into force with immediate effect. AD banks may bring the contents of this circular to the notice of their constituents and customers concerned.
The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
[ad_2]