With a view to promote global trade and increase the emphasis on exports from India, the Reserve Bank Of India took the decision to a set up a rupee settlement system that will aim to increase support for the Indian currency.
This will largely be seen as a positive development as the rupee’s brutal plunge continued on Monday, hitting new record lows of INR 79.45 to the dollar.
Before putting in place this mechanism, authorized dealer (AD) banks shall require prior approval from the Foreign Exchange Department of Reserve Bank of India, the central bank added.
The exchange rate between the currencies of the two trading partner countries may be market-determined.
Indian importers undertaking imports will now make payment in rupees which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier.
Meanwhile, Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in rupees from the balances in the designated Special Vostro account of the correspondent bank of the partner country.
The order goes into effect immediately.