TRADE IN RUPEES - ECONOMY
News: RBI
has allowed banks from 18 countries to trade in rupee: Government in Rajya
Sabha
What's in the news?
● The
Government told the Rajya Sabha that banks from 18 countries have been
permitted by the Reserve Bank of India (RBI) to open Special Vostro Rupee
Accounts (SVRAs) for settling payments in Indian rupees.
Key takeaways:
● The
SVRAs could be set up by banks of partner countries by approaching Authorized Dealer (AD) banks in India that may get
permission from the RBI after the due procedure.
Countries got approval from RBI:
● The
RBI had granted approval to domestic and
foreign AD Banks in 60 cases for opening SRVAs of banks from 18 nations
such as Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius,
Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania,
Uganda and the United Kingdom.
Russia's Voice:
● Russia
has been vocal in using trade in local currency for the overall process of “de-dollarization”.
India's Response:
● But
India has been supporting the idea of trade in local currency mainly to boost exports.
Go back to basics:
Vostro Account:
● A
Vostro account is an account that a
domestic bank holds for a foreign bank in the domestic bank’s currency -
which, in the case of India, is the rupee.
● The
process of SVRAs began in July 2022 when the RBI announced that, “it has been
decided to put in place an additional arrangement for invoicing, payment, and
settlement of exports/imports in INR [Indian rupees].”
Need for Vostro Account:
● Trade
in local currencies have been mooted as a solution to avoid the current wave of
wartime international sanctions that are hampering supply chains and global
trade flows.
How does it work?
1.
Indian importers could make payment in
rupees to the Special Vostro account of the correspondent bank of the partner
country, against invoices for the supply of goods or services from the
overseas seller.
2.
Indian exporters shall be paid proceeds in rupees from the balances in the
designated vostro account of the correspondent bank of the partner
country.
India's Recent Trade Pacts:
● In
the last one year, India has finalised trade pacts with partner countries such
as the UAE and Australia and begun negotiation with others such as the U.K. and
the European Union while making inroads for the national currency in bilateral
and global trade.