
Mint Primer | The significance of RBI’s plan to take the rupee global

Summary
- In a circular last week, RBI allowed overseas branches of authorized dealer (AD) banks to open rupee accounts for non-resident Indians for settling current and capital account transactions with Indian residents.
The Reserve Bank of India (RBI) has allowed non-residents to open rupee accounts in the overseas branches of India-registered authorized dealer banks to conduct cross-border transactions. Mint explains the significance of this move:
What are the new rules?
In a circular last week, RBI allowed overseas branches of authorized dealer (AD) banks to open rupee accounts for non-resident Indians for settling current and capital account transactions with Indian residents. AD banks are authorized by RBI to deal in foreign exchange or foreign securities. RBI also allowed non-resident Indians to settle transactions among themselves using their rupee accounts. The guidelines permit non-residents Indians to use rupee accounts for foreign investments in rupee assets. The new rules aim to ease the process of cross-border transactions, particularly for traders and investors.
How will this benefit customers?
A non-resident Indian (NRI) in the US, for instance, can now open a rupee account with the New York branch of an India-registered AD bank. They will be able to hold rupees received for exports to India and use the rupee balance for business payments to a person resident in India. These accounts can be used for receiving export earnings, handling advance remittances, and making import payments. With this, NRIs will have the option of holding and utilizing the rupee proceeds as per requirements. However, exporters are required to repatriate any remaining funds to India by the end of the following month.
Read more: What you need to know about RBI rules when investing abroad
What do bankers have to say?
While the rules are meant to promote the rupee in global trade, bankers say they are unlikely to see many transactions as the rupee is a non-convertible currency. They say these accounts can be opened only for trade transactions and only in the UAE, Indonesia and Maldives, but Mukul Chand, senior counsel, Economic Law Practise, said it is open to all countries.
What does the RBI say?
An RBI committee submitted a report in 2023 recommending a roadmap to internationalize the rupee including inclusion in the International Monetary Fund’s Special Drawing Rights basket. Recommended short-term measures included bilateral and multilateral trade arrangements for invoicing, settlement and payment in INR and local currencies. The panel also encouraged opening of rupee accounts for NRIs (other than vostro accounts of overseas banks) in and outside India.
What efforts have been made so far?
India has been trying to promote the use of the rupee in foreign trade and transactions. In July 2022, RBI allowed overseas banks to open a special rupee Vostro account with an AD bank in India to facilitate rupee settlement of trade. The RBI’s goal was to promote the use of the rupee as an international currency, and to enable trade with Russia and other sanction-hit nations. A Vostro account is held by a domestic bank on behalf of a foreign bank, which can be used to settle forex transactions, etc.
Read more: Rupee tantrums: The risk and cost of RBI's approach