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Russia has been actively utilizing a special trade mechanism to buy Indian goods, spending nearly $4 billion from rupee vostro accounts in the past six to eight months. This comes amidst sanctions imposed by several countries due to the ongoing war in Ukraine.
What are Rupee Vostro Accounts?
Rupee vostro accounts allow foreign entities to hold Indian rupees with Indian banks. This mechanism facilitates trade settlements in rupees, bypassing the US dollar and potentially mitigating the impact of sanctions.
Russian companies haven’t found many investment opportunities in India. However, they’ve seen value in using their rupee holdings for purchases. The report suggests that with $4 billion spent, Russia may have utilized half of its roughly $8 billion held in rupee vostro account.
India Promotes Rupee Trade
In July 2023, the Reserve Bank of India (RBI) took steps to promote rupee trade by allowing authorized banks to open special rupee vostro account for partner banks from 22 countries. This initiative aims to facilitate bilateral trade settlements in local currencies, reducing reliance on the US dollar.
A recent agreement between the RBI and the Central Bank of the UAE further strengthens this approach. This pact allows exporters and importers from both countries to settle transactions in their respective domestic currencies. Potentially leading to the development of a bilateral foreign exchange market.
Also Read – New Loan Transparency Rules from RBI
