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The Reserve Bank of India on 11 July unveiled a rupee settlement system for international trade, aiming to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in Indian Rupee.

According to the new system, banks will need to seek prior approval to use. The new order takes immediate effect, RBI said.

"In order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR (Indian rupee), it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR," the notification said.

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Exporters and importers can now use a Special Vostro account linked to the correspondent bank of the partner country for receipts and payments denominated in rupees, RBI added.

Among other details, RBI said that all exports and imports under the invoicing arrangement may be denominated and invoiced in Rupee, while exchange rate between the currencies of the two trading partner countries may be market determined.

Apart from this, the apex bank said that the Special Vostro Accounts can be used for payments for projects and investments, import or export advance flow management, and investment in Government Treasury Bills -- subject to Foreign Exchange Management Act, 1999 (FEMA).

Also, the bank guarantee, setting-off export receivables, advance against exports, use of surplus balance, approval process, documentation, etc., related aspects would be covered under FEMA rules, the RBI said.

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