A system for settling international trade in rupees has been established by the Reserve Bank of India (RBI) in order to foster the expansion of global trade with a focus on exports from India and to support the increasing interest of worldwide trading community in the rupee.
The Special Vostro account of the correspondent bank of the partner country must be credited with INR by Indian importers who use this mechanism to import products. The INR payment will be applied to the invoices for the supply of goods or services from the foreign seller or provider.
The funds in the designated Special Vostro account will be used to pay exporters who use this system to send products and services overseas in Indian rupees.
In response to mounting pressure on the Indian rupee following Russia's invasion of Ukraine and US and EU sanctions, the central bank made this decision.
Trade with Russia and its South Asian neighbors is likely to be facilitated by the Indian central bank's decision to allow importers to pay with rupees and exporters to be paid in rupees, which will also aid in the long-term objective to internationalize the Indian currency.
This measure can be especially helpful for neighboring countries of India like Nepal and Bhutan and countries willing to use the rupee as a base currency for trade diversification in their settlement procedures.
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