Why Indian Govt is Pushing for International Trade in Rupee?
Sep 10, 2022
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Probable Question
Context
The Background
Way It Would Work
Current System
Probable Question
What steps could be taken to promote international trade in rupee?
Context
The Finance Ministry wants stakeholders including banks and the Ministries of External Affairs and Commerce to discuss ways to promote international trade in rupee instead of the United States dollar.
The Background
- On July 11 2022, the RBI issued a circular saying it had decided “to put in place an additional arrangement for invoicing, payment, and settlement of exports/ imports in INR”.
- The move to allow trade settlements between India and other countries in rupees was seen to primarily benefit trading with Russia.
- There are sanctions imposed on Russia post the Ukraine war and the country is off the SWIFT system.
| Additional Information: SWIFT stands for Society for Worldwide Interbank Financial Telecommunication, which is the world's international payment network used by banks and other financial systems to quickly, accurately, and securely send and receive information, such as money transfer instruction. |
- It was also expected to help check dollar outflow and slow the depreciation of the rupee to a “very limited extent”.
Way It Would Work
- To settle trade transactions with any country, banks in India would open Vostro accounts of correspondent bank/s of the partner country for trading.
| Additional Information A Vostro account is an account that a correspondent bank holds on behalf of another bank — for example, HSBC Vostro account is held by SBI in India. |
- Indian importers can pay for their imports in INR into these accounts. These earnings from imports can then be used to pay Indian exporters in INR.
Current System
- Exports or imports payments by a company are always in a foreign currency, with exceptions such as Nepal and Bhutan.
- The currency is exchanged.
News source - https://indianexpress.com/article/explained/explained-economics/rupee-international-trade-govt-push-explained-8136719/
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