Internationalization of INR

Internationalization of INR

On 11^th July, 2022 RBI, in order to promote growth of global trade with emphasis on exports from India, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in INR. Confused?

Let’s understand the whole process with one small example so that we understand how INR will be internationalized with this move.

1. Indian Oil wants to buy oil from Russian company and the entire invoice is raised in INR. So here let’s say banker of Indian Oil is SBI and it approaches Bank of Russia (banker of oil seller in Russia) and opens a Vostro account. It means Rupee denominated account of SBI in Bank of Russia so that once Indian Oil sends a payment for Oil, this INR payment will be deposited in SBI’s account in Bank of Russia and then Oil seller would be paid in INR from this SBI’s account.

2. Now let’s say same Oil seller bought Tea from Sri Lanka and again the same SBI’s account in bank of Russia will be used for making payment in INR (assuming Sri Lanka is ready to accept payment in INR.)

3. Now further let’s assume that some excess funds are left with oil seller in INR (after selling oil and buying tea from Sri Lanka), according to above new rules, Russian Oil seller can invest those excess INR in Indian Govt securities or treasury bills.

Now if you observe India will be able to capitalize INR in changing global macro economic conditions. And India will no longer need to make payments for export-import in USD, which will help to reduce the fall of INR against USD.

Thus, to put it in nutshell, all exports and imports under this arrangement may be denominated and invoiced in Rupee (INR). Banks in India have been permitted to open Rupee Vostro Accounts, accordingly, for settlement of trade transactions with any country.

The exporter with the balance of exports proceeds later on can invest those proceeds in project in India or Investment in Government Treasury Bills, Government securities, etc.

Only exception is, before all this, bank will seek approval from the Reserve Bank with details of the arrangement. 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.