RBI Pushes For Global Rupee Adoption: New Rules To Simplify Trade

To increase the Indian Rupee ’s global adoption in trade transactions, the Reserve Bank of India ( RBI ) has made sweeping changes to FEMA regulations.

The initiative follows the introduction of Special Rupee Vostro Accounts (SRVAs) in July 2022, a mechanism allowing foreign banks to partner with Indian banks for trade settlements in INR. Since then, numerous foreign banks have opened SRVAs, signalling a growing acceptance of INR for international trade.

Building on this, the RBI has signed Memorandums of Understanding (MoUs) with the central banks of the United Arab Emirates, Indonesia, and Maldives to enable cross-border transactions in local currencies, fostering bilateral trade.

Key Revisions Under FEMA 1999
In December 2023, the Foreign Exchange Management (Manner of Receipt and Payment) Regulations underwent critical updates, allowing cross-border transactions in all foreign currencies, including INR and the local currencies of trading partners. A recent review in collaboration with the Central Government has brought about further transformative changes:

Overseas INR Accounts: Authorized Dealer banks’ overseas branches can now open INR accounts for non-residents to settle permissible current and capital account transactions with Indian residents.

Expanded Use of INR Accounts: Non-residents can now use balances in repatriable INR accounts (e.g., Special Non-Resident Rupee Account and SRVA) for transactions with other non-residents.

Foreign Investment Empowerment: Repatriable INR account balances can now fund foreign direct investment (FDI) in non-debt instruments.

Enhanced Flexibility for Exporters: Indian exporters can open accounts in foreign currencies overseas, facilitating seamless trade settlements, including receiving export proceeds and paying for imports.

Strengthening India’s Global Trade Position
These reforms reflect the RBI’s vision of boosting the rupee’s role in global trade, reducing reliance on hard currencies like the US dollar. The changes aim to enhance trade partnerships, attract foreign investments, and position India as a key player in the evolving global trade landscape by enabling easier cross-border transactions in INR and local currencies.