RBI’s Interventions in the Payment System
- The Reserve Bank of India (RBI) recently issued a circular that detailed ‘additional arrangement’ for invoicing, payment, and settlement of exports and imports in Indian rupees.
How it works?
- Under this system, Indian importers could pay bills for the supply of products or services from the foreign seller in rupees to the Special Vostro account of the correspondent bank of the partner country.
- Proceeds from the balances in the designated vostro account of the correspondent bank of the partner country shall be remitted to Indian exporters in rupees.
- Vostro accounts have existed for some time. Because exporters normally prefer settlements in a strong and stable currency, they were probably not extensively used.
- First, the RBI has said unequivocally that the banks of partner nations may mutually agree upon the exchange of communications in a safe, secure, and efficient manner.
- Shortly after Russia invaded Ukraine, the Belgian-based SWIFT, or Society for Worldwide Interbank Financial Telecommunication, started barring Russian banks from using this channel for financial transactions.
- The intention was to make doing business with the rest of the world for Russian entities complicated and time-consuming.
What will be the impact?
- The new interventions by RBI will lead to ease of doing business with the Russian entities.
- Russia which has a favourable balance of trade with India would like to make payments in currencies other than the dollar and the euro.
- This is significant time when Russia is facing economic sanctions from the western countries.
- It would ease the downward pressure on the rupee, which has been sliding to record lows frequently in the recent past.
Source The Hindu
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