The background:

• On July 11 this year, the RBI issued a circular saying it had decided “to put in place an additional arrangement for invoicing, payment, and settlement of exports/ imports in INR”.
• The idea, the RBI said, was to “promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR”.
• While the move to allow trade settlements between India and other countries in rupees was seen to primarily benefit trading with Russia, it was also expected to help check dollar outflow and slow the depreciation of the rupee to a “very limited extent”.

Way it would work

• To settle trade transactions with any country, banks in India would open Vostro accounts of correspondent bank/s of the partner country for trading. Indian importers can pay for their imports in INR into these accounts.
• These earnings from imports can then be used to pay Indian exporters in INR.
• A Vostro account is an account that a correspondent bank holds on behalf of another bank — for example, HSBC Vostro account is held by SBI in India.