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The recent declaration by the Reserve Bank of India (RBI) to allow cross-border commerce transactions in rupees is seen by experts as a timely move and a step toward the internationalisation of the currency.

The RBI, earlier in July, requested banks to make additional preparations for exports and imports to be invoiced, paid for and settled in the rupee. This was done to support the growing interest of the international trading community in the domestic currency and to encourage the expansion of global trade, with an emphasis on Indian exports.

Speaking at an event organised by IMC Chamber of Commerce and Industry, RBI's former Executive Director G Padmanabhan said, 'for internationalisation, one of the things to happen is that increasingly the currency gets used for trade transactions. This (RBI's rupee invoicing move) is definitely a step forward as far as internationalisation is concerned".

Radhika Rao, Senior Economist and Executive Director of DBS Bank, stated that rupee invoicing will contribute to the internationalisation of the rupee as the settlement currency.

"It is a very timely and definite step towards an eventual internationalisation. Now this eventuality is few years to few decades away but nonetheless the timing of this circular has understandably drawn many to conclude quite swiftly that this is meant to be here now," she said.

Rao clarified, though, that this declaration shouldn't be interpreted as an effort to support the rupee's value.

"It basically is more about expanding its (rupee's) usage than pushing the currency in a certain direction," she said.

According to the circular, Authorised Dealer (AD) banks will need prior approval from the Foreign Exchange Department of RBI before using rupee invoicing mechanisms.

"The bank of a partner country may approach an AD bank in India for opening a Special INR VOSTRO account. The AD bank will seek approval from the Reserve Bank with details of the arrangement," it said.

According to Padmanabhan, the RBI aims to monitor if accounts are being formed for the intended use by using this approval process.

"Who is opening the account? Which country is opening the account? What kind of transactions are happening? Initially, RBI would like to keep a tab of what is happening. So, this approval process has been put in place," he added.

(With PTI inputs)

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