RBI Announces Measures to Boost Cross-Border Transactions in Rupee

Sub: Eco

Sec: External sector

Why in News?

The Reserve Bank of India (RBI) has announced liberalised norms to encourage the use of the Indian Rupee (INR) for cross-border transactions, coinciding with the rupee’s depreciation to a record low of ₹86.70/USD.

Context:

These steps aim to strengthen trade using local currencies, reduce dependence on USD, and promote the rupee’s acceptance in global markets.
The move is part of India’s broader strategy to enhance bilateral trade agreements with various nations, including UAE, Indonesia, and the Maldives.

Key Takeaways:

Agreements with Other Nations:

RBI has signed MoUs with the central banks of the UAE, Indonesia, and Maldives to facilitate cross-border trade in local currencies, including the INR.

Special Rupee Vostro Account (SRVA):

Introduced in July 2022 to support trade in INR.
Several foreign banks have opened SRVAs with Indian banks, allowing seamless settlement of international trade.

Expanded Use of INR for Non-Residents:

Overseas branches of authorized dealer banks can now open INR accounts for non-residents to settle:
- Permissible current and capital account transactions with Indian residents.
- Transactions between non-residents using balances in Special Non-Resident Rupee Accounts or SRVAs.

Non-Resident Investment Opportunities:

Non-residents can now use INR balances for:
- Foreign Direct Investment (FDI) in non-debt instruments.
- Other permissible foreign investments.

Flexibility for Indian Exporters:

Indian exporters are now permitted to open foreign currency accounts overseas for trade settlement, offering greater flexibility in managing trade payments.

Significance of the Move:

Promotes Rupee Internationalisation: Encourages the use of INR in global trade, reducing dependency on USD.
Enhances Trade Relations: Supports India’s bilateral trade agreements by facilitating smoother currency exchange mechanisms.
Boosts Confidence in INR: Addresses the challenges posed by rupee depreciation and promotes its acceptability for international investments.
Simplifies Trade Operations: Offers Indian exporters and non-residents new avenues for efficient trade settlements.

Special Rupee Vostro Account (SRVA)

The Special Rupee Vostro Account (SRVA) is an arrangement introduced to facilitate international trade using the Indian Rupee (INR) instead of relying solely on freely convertible currencies like the US Dollar or Euro.
This system complements the existing trade settlement mechanisms and reduces dependence on hard currencies.