In a landmark move to challenge the USD’s dominance, India has issued an official circular allowing BRICS nations to settle 100% of their trade in the rupee. Analysts say the move could accelerate the decline of the dollar’s supremacy in the international markets. The Reserve Bank of India published a report on Tuesday directing banks to open more Vostro accounts without prior approval. The banks can now allow export and import businesses from other countries to settle trade in the rupee through the special Vostro accounts.
The circular comes after Trump imposed 50% tariffs on India last week, and the Modi government wants to strengthen the rupee. The development is seen as a retaliation against the policies of the White House. Apart from BRICS, India has also sent the circular to other countries, granting them direct payments in the rupee and not the USD. Cross-border transfers will benefit India and make the USD face a deficit in the international markets.
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Overseas businesses no longer need prior approval from the RBI to open the Vostro accounts. The banks will now facilitate the account, allowing more businesses to onboard and use the rupee for settlements. “This is essentially a bank-to-bank arrangement similar to a correspondent banking arrangement,” read the RBI report. This gives BRICS an edge in trade and skirts Trump’s tariffs by using the rupee and not the USD.
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However, the RBI has clearly stated that all companies must adhere to the KYC norms before onboarding. The RBI believes that facilitation of the Vostro accounts will bring in more rupees from overseas, strengthening its local currency. This will also reduce exchange rates and will be directly determined by the forex markets. While India is leveraging the rupee against the USD, other BRICS members are also pushing their local currencies for settlements.