World attracting over Indian rupee
India’s rupee trade settlement mechanism, a means of using rupees instead of dollars and other big currencies for international transactions, is attracting interest from more countries.
Some countries like Tajikistan, Cuba, Luxembourg and Sudan have already started talking to India about using the mechanism. Russia following the imposition of sanctions on Moscow over the Ukraine war is also a major affect for attracting Indian rupee trade settlement.
Indian rupee trade settlement:
In July, the Reserve Bank of India (RBI) had set up the mechanism in search to bring countries that are short of dollars into the mechanism.
As of now the four countries have shown interest in opening special rupee accounts called ‘VOSTO accounts’ but partner banks in India are not yet providing those facilities, documents showed.
Opening of special rupee accounts are required for approval from the Reserve Bank of India.
RBI’s approval to open VOSTRO:
The Reserve Bank of India has already given its approval to open special VOSTRO accounts to Mauritius and Sri Lanka as they have shown interest some time before.
India’s central bank, RBI has already given permission to banks to open 12 VOSTRO accounts for trade in rupees with Russia.
Since its inception six other accounts, including five for trade with Sri Lanka and one for trade with Mauritius have been authorized.
Dealing with Gulf countries:
India has discussing about denomination of trade in rupees with larger trading partners with gulf nations including key oil suppliers Saudi Arabia and United Arab Emirates.
Details of potential rupee-dirham trade mechanism are being arranged by the central banks of India and UAE. India is talking with Saudi Arabia on a rupee-riyal trade mechanism.
The UAE and Saudi Arabia are finding ways to invest Indian rupees they earn as part of these transactions, as the gulf nation’s exports to India exceed imports from it.
As part of the rules issued earlier this year, the Indian central bank has granted for any rupee holdings to be invested in government securities.
Question & Answer:
Q1. The Reserve Bank of India (RBI) had set up which mechanism in search to bring countries that are short of dollars?
Ans. Indian Rupee trade settlement
Q2. Which countries are attracting to accept Indian rupee trade settlement so far?
Ans. Tajikistan, Cuba, Luxembourg, Sudan, Sri Lanka, Mauritius and Gulf countries
Q3. What is VOSTRO account?
Ans. A VOSTRO account is an account which is holded by a correspondent bank on behalf of another bank