RBI Brings New Mechanism To Settle International Trade in Indian Currency
The RBI has introduced a new mechanism to settle payments in International trade with Indian currency. In the new mechanism, the issues related to invoicing, exchange rate, and settlement will be addressed.
On Monday, the Reserve Bank of India (RBI) announced to introduce new measures for international trade settlement in Indian currency. The move has been announced in order to promote global trade while emphasizing exports from India.
In an official press release, the RBI stated, "In order to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in rupee, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in rupee."
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Banks will need prior approval from Forex
As per the circular, the banks will require prior approval from the department of foreign exchange. In the new mechanism, the issues related to invoicing, exchange rate, and settlement will be addressed.
It said, "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."
As per a report by Financial Express, "Currently, 60% of export/import payments by Indian firms are denominated in the US dollar, about 5-10% in rupee and the balance in other currencies, including the euro. Even in cases where an Indian exporter receives the payments in rupee, the settlement at the sovereign level is done in dollars, with the exchange rate risk borne by the individual trader. Under the new mechanism, even the final settlement will be via the rupee."
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A unique rupee Vostro record of correspondent banks
For settlement of international trades with any country, a bank in India will require to open a unique rupee Vostro account of correspondent banks of the accomplice exchanging country. Indian merchants involving this settlement course will make installments in the Indian currency which will be credited into the special Vostro account of the partner country's bank, against the solicitations for the stockpile of labor and products from the abroad dealer/provider. In the same manner, Indian exporters will be paid the commodity exchanges in Indian rupee by the partner countries in the assigned special Vostro account of the correspondent banks.
Indian exporters to get advance payments in INR
Indian exporters will also get a settlement in advance in Indian rupees. For this, Indian banks will guarantee that accessible assets in these accounts are first utilized towards installment commitments emerging out of currently executed export orders. To guarantee that the development is delivered exclusively according to the directions of the abroad merchant, the Indian bank keeping up with the unique Vostro record of its reporter bank will, aside from the standard expected level of investment measures, confirm the case of the exporter with the guidance got from the correspondent bank prior to delivering the order.
