Cross-border trade payments can now be settled in INR!

On 12th July, the Reserve Bank of India announced an additional framework for invoicing, payment, and settlements of exports/imports in Indian Rupees. The circular seeks to promote global trade with emphasis on exports from India and to increase interest of global trading community in Indian Rupees (INR).

This is the first step towards 100% convertibility of Indian Rupees and will help internationalize the currency.

What does it mean to banks?

The RBI in its statement said, "Before putting this mechanism in place, Authorized Dealer (AD) banks shall require prior approval from the Foreign Exchange Department of Reserve Bank of India, Central Office in Mumbai."

AD banks in India are being permitted to open Rupee Vostro Accounts. This helps Indian importers make payments in INR. The amount will 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. The balance in the Special Vostro Accounts can be used for project payments and to make investments in treasury bills and government securities.

Potential outcomes

• Enables Indian Rupees to become a base currency for trade diversification

• Reduces currency fluctuation risks for importers and exporters

• Facilitates trade with countries under sanctions (Iran and Russia)

With this move, India is widening its trade opportunities and cross-border payments potential.

Watch this space for more!

A quick peek into the futuristic growth of cross-border transactions across the globe.