Following the Reserve Bank of India’s (RBI) initiative to enable invoicing and payments for international trade in rupees and other local currencies, 123 correspondent banks from 30 trading partner countries have opened special accounts with Indian banks. The aim is to facilitate cross-border trade transactions in local currencies, according to Jatin Prasada, Minister of State for Commerce and Industry.
Special Rupee Vostro Accounts and Currency Settlement
As part of this initiative, the RBI has approved the establishment of 56 Special Rupee Vostro Accounts (SVRO), with 26 banks authorized to handle foreign exchange transactions. These accounts are designed to support direct trade settlement in local currencies, minimizing dependency on foreign exchange reserves such as the US dollar.
The RBI has also formalized Local Currency Settlement System (LCSS) arrangements with countries including the UAE, Indonesia, and Maldives to encourage trade settlement in Indian Rupee (INR) and partner countries’ local currencies.
Regulatory Changes for Cross-Border Transactions
In December 2023, the Foreign Exchange Management (Manner of Receipt and Payment) Regulations were updated to permit cross-border transactions in a broader range of foreign and local currencies. This regulatory shift aims to promote smoother bilateral trade, reduce currency risks, and enhance India’s global trade partnerships.
Also read: RBI Launches ‘Bank.in’ Domain for Indian Banks
Benefits of Local Currency Trade
The local currency trade mechanism is expected to offer several advantages for both India and its trading partners, including:
- Reduced currency exchange costs
- Minimized foreign currency exposure
- Improved trade efficiency
- Enhanced bilateral relations
By increasing the use of Indian Rupees in international trade, the initiative aligns with India’s efforts to promote currency diversification and strengthen its role in the global economic landscape.
The RBI’s continued engagement with partner countries through LCSS arrangements and the Special Rupee Vostro Account system reflects its commitment to making India’s trade ecosystem more resilient and less reliant on major global currencies.
