India: 22 countries approved for “YOUR” Rupee international payment system

11 August 20239 months ago babelfish

The Indian government announced Tuesday that it was approving banks in 22 partner countries, including Russia and the UK, to set up VOSTRO accounts in India. This move aims to improve rupee trading by facilitating international banking services for customers with global banking needs.

This will lead to an increase in the use of the Indian Rupee as a currency for international payments.

“YOUR” account

The Rupee Your Account system is a financial arrangement that allows foreign banks to transact Indian rupees with banks in the subcontinent. The term “your” comes from the Latin phrase “ in nostro nostro ”, which translates to “ in our account, in your account ”. In this context, the domestic bank is referred to as the "your" bank, and the foreign bank is the "our" bank.

The Reserve Bank of India (RBI) regulates the Rupee Vostro Account system, which allows foreign banks to maintain accounts with domestic banks to facilitate trading and investment activities in India. The system provides a secure and transparent mechanism for foreign banks to transact in Indian rupees without having to open a local branch in India.

How does the Rupee Vostro account system work? Foreign banks wishing to open a Rupee Vostro account must first obtain approval from the RBI. Once approved, the foreign bank can open an account with a domestic bank and deposit funds in Indian rupees. The domestic bank then manages the account and provides transactional services to the foreign bank, such as clearing and settlement, foreign exchange and remittances.

The Rupee Vostro Account system works on a bilateral basis, which means that each foreign bank must open a separate account with a domestic bank. The system allows foreign banks to conduct a wide range of Indian rupee transactions, including trade finance, investment and remittances.

What are the advantages of Rupee Vostro account system

The Rupee Your Account system offers many benefits to foreign banks doing business in India. These include:

No obligation to open a local branch in India: The system allows foreign banks to transact in Indian rupees without having to open a local branch in India, reducing operational costs and overheads.
Access to the Indian market: The scheme provides foreign banks with access to the Indian market, enabling them to conduct trading and investment business with domestic companies.
Streamlined Transaction Processing: The system provides a streamlined and efficient mechanism for overseas banks to transact in Indian rupees, reducing transaction processing time and costs.
Mitigates currency risk: The system helps foreign banks mitigate currency risk by allowing them to hold funds in Indian rupees, thus avoiding the need to convert funds into other currencies.

A “YOUR” account is an account held by domestic banks for foreign banks in the local currency. It serves domestic banks to meet the international banking needs of their customers.

This concept falls under the umbrella of correspondent banking, where one bank (or intermediary) carries out wire transfers, commercial transactions, taking deposits and collecting documentation on behalf of another bank.

Already 34 Russian banks have been approved for the use of VOSTRO, but the interchange in Rupees presents problems due to the differences between the two economic systems which make it difficult to develop a balanced trade .

India has been actively urging partner countries to facilitate trade using the rupee, with the aim of reducing the cost of converting the currency during transactions. Opening this type of account will have two different effects:

first of all it will facilitate commercial transactions between India and the participants in this clearing system and will allow for a greater opening up of the Indian financial system;
a decrease in the use of the dollar as an instrument for regulating international commercial transactions, even if this decrease has to be assessed ex post.

Many other countries, including Bangladesh, Russia, Germany, Israel, Uganda, Sri Lanka, the United Kingdom, Singapore and New Zealand have also set up 'vostro' accounts to trade rupees.

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The article India: 22 countries are approved for “YOUR” international payment system in Rupees comes from Economic Scenarios .

This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/india-22-paesi-vengono-approvati-per-il-sistema-vostro-di-pagamento-internazionale-in-rupie/ on Thu, 10 Aug 2023 08:30:08 +0000.