Context: 

·        On January 16, 2025, the Reserve Bank of India (RBI) unveiled a set of measures aimed at encouraging the use of the Indian Rupee (INR) and other local currencies in cross-border transactions.

·        This announcement comes at a crucial time when the INR has been experiencing a downward trend, recently hitting an all-time low of 86.70 against the US Dollar.

·        The steps are part of a broader initiative to promote the INR in international trade and foster smoother cross-border transactions.

Key measures taken by RBI:

The RBI has introduced more flexible regulations for settling cross-border transactions using the Indian Rupee, making it easier for foreign entities and individuals to engage in trade with Indian counterparts using the local currency. This is seen as a strategic move to reduce dependency on the US Dollar and to stabilize the INR in the global market.

·        As part of the new liberalized norms, overseas branches of Authorized Dealer banks will be allowed to open INR accounts for foreign residents to settle transactions with Indian residents. This includes both current account and capital account transactions, which enhances the flexibility of the accounts for international businesses and individuals.

·        The new regulations permit non-residents to use balances in their repatriable INR accounts, such as Special Non-resident Rupee Accounts (SNRAs) and SRVAs, to settle transactions with other non-residents. This further simplifies the use of INR in global trade and investment.

·        Residents outside India will also be able to use their INR account balances to make foreign investments in India, including Foreign Direct Investment (FDI) in non-debt instruments. This is expected to boost foreign capital inflow into India and strengthen the role of INR in the global financial system.

·        Indian exporters will be permitted to open foreign currency accounts abroad to facilitate the settlement of trade transactions. This allows exporters to receive export proceeds in foreign currencies and use them to pay for imports, making cross-border trade more efficient.

Measures taken by RBI to promote local currency:

To further boost the usage of INR in global transactions, the RBI has signed MoUs with the central banks of several countries, including:

• United Arab Emirates
• Indonesia
• Maldives

These agreements will facilitate cross-border trade settlements in local currencies, including the Indian Rupee.

About Special Rupee Vostro Account (SRVA):

In July 2022, the RBI introduced the Special Rupee Vostro Account (SRVA) to promote the use of the INR in international trade. The SRVA arrangement allows foreign banks to open INR accounts with Indian banks for settlement of trade transactions.