RBI Historic Step

As we all know, all the trade deals that take place between countries with each other are in transition through the dollar. The U.S. dollar is more reliant because the USA's economy is consistently positive. The dollar is once more dependent on any currency in the world. Indian rupee is not in the basket of the International Monetary Fund. So, recently, RBI’s Announcement that the transaction between an importer and exporter In India and outside India, is made through rupee transaction system. What Does It Imply? All the transactions between Any importers and exporters for Indian purposes is done by rupees transaction.

Why is the RBI concerned? There are many reasons to take them. The main reason for the RBI's actions is to increase pressure on the Indian currency in the aftermath of Russia's invasion of Ukraine, in order to save and cap the increasing value of the Indian rupee in relation to the dollar. RBI, made this move. As we have already heard, Indian rupee value. In respect of the dollar, it is approx,80 rupees per dollar. This is a lifetime high.

                                    

The second reason is that to enhance the rupee for foreign transactions, Russia is under severe sanctions. As a result, we cannot buy and sell any goods and services by using the dollar payment system. As a result of that, the RBI In search of a transaction mechanism to bypass the swift ban and to build a mechanism of transaction between Russia and India, and also for all the foreign countries that want this system, they may join us. RBI’s also look at this matter very seriously that The US has imposed very severe sanctions on Russia, and many more countries have also imposed sanctions on Russia. The European Union also imposed a sanction on Russia, so for this the transaction between Russia and India is very complicated in terms of dollars. Because the dollar is not accessible to Russia, this is a very good opportunity for Indian companies, traders, and many more industries to grasp the Russian market. The RBI made these changes to surpass the global payment system. Indian direct trade with the rupee This would also enhance the Indian rupee in the global market.

How it works?

The transfer of rupee was through vostro accounts. Let’s understand. What is Vostro account?

Vostro account means if Indian bank has no presence in foreign land. Then that Indian bank partner with. Another. Bank of the foreign Land and open up an account. That account is called Vostro account, so for trading by this mechanism firstly the Indian bank partner with that foreign bank and open up a vostro account to move further for any transaction, also RBI said that their permission is mandatory to open up these vostro account.

To settle this trade deals, authorized Indian banks will need to open a special rupee vostro account from the partner trading countries bank. Indian importers using this mechanism will need to pay in rupees. This will be credited into special master account of the correspondent Bank of the partner country against the invoices for the supply of goods or services. Indian exporters, on the other hand, will be paid in rupees from the balance in the designated special nostro account of the correspondent Bank of the partner country.