The story so far: The Reserve Bank of India (RBI) on Monday issued a circular that detailed ‘additional arrangement’ for invoicing, payment, and settlement of exports and imports in Indian rupees. Under this mechanism, Indian importers could make payment in rupees to the Special Vostro account of the correspondent bank of the partner country, against invoices for the supply of goods or services from the overseas seller. Indian exporters shall be paid proceeds in rupees from the balances in the designated vostro account of the correspondent bank of the partner country.
How does this change the status quo?
Vostro accounts have been around for a while. They were likely not widely used because exporters in any country typically prefer settlements in a strong and stable currency.
