To Vostro or not.

"The Reserve Bank of India (RBI)...announced an arrangement for domestic traders to settle imports and exports in rupees," which apparently, "would promote global trade growth with an emphasis on exports from India and will support the increasing interest of the global trading community in the domestic currency." HT. "Under the mechanism, Indian importers will make payments in rupees, to be credited to the Vostro account of the correspondent bank of the partner country. Similarly, Indian exporters will be paid the export proceeds in rupees from the balances in the Vostro account of the partner country." "A Vostro account is an account a correspondent bank holds on behalf of another bank." Investopedia. Problem is, India runs a trade deficit with most countries perennially. "India's trade deficit swelled to a record $25.63 billion in June," and "The trade deficit during the first three months of this fiscal year (April-June) widened to $70.25 billion." ET. "The current account balance recorded a deficit of 1.2 percent of GDP in 2021-22 as against a surplus of 0.9 percent in 2020-21 as the trade deficit widened to US$189.5 billion from US$102.2 billion a year ago." RBI. India's trade deficit with China "surged to an all time high of $73 billion in FY22". CNBC. Why would Chinese companies accept payment in rupees when they may have to buy raw materials in dollars? "In 2021-22, India had a trade surplus of $32.8 billion with the US." BS. India has total external debt of $620.7 billion. "Officials clarified the debt position following concerns over India's external debt as $267 billion repayments are due in less than one year." ET. Of this "the Center's share is just $7.7 billion or less than 3%". The rest must be external commercial borrowing (ECB) by companies and bank deposits by non resident Indians (NRI) which must, presumably, be repaid in the foreign currencies in which they were borrowed. Companies will buy foreign currencies from the RBI in rupees which will reduce foreign currency reserves of the RBI and also result in a fall of the rupee. To preempt that the RBI has doubled the limit of ECB via the automatic route from $750 million to $1.5 billion and "Banks borrowing in foreign currency (are) allowed to expand the end use of funds beyond export." Telegraph. The US Federal Reserve has hiked its Funds rate by 150 basis points since March 2022. CNBC. So the RBI is allowing companies and banks to borrow at higher rates to repay cheaper loans, which are maturing this year, thus storing problems for the future. Plus, "One, the rate of growth of gross incoming FDI (foreign direct investment) fell sharply in 2021-22 to 2% from 10% in the previous year and 20% the year before that." "Two, FDI outflows, which includes divestment of Indian assets by existing foreign investors and overseas investments made by Indians, also hit a record high of $44.3 billion, a growth of 16%." Mint. Actually, "India's real effective exchange rate, measured by the 40-currency basket favored by the RBI, is overvalued by 4%," wrote SAA Aiyar. Which means the rupee has more room to fall. A Vostro by any other name still means rupees. Why would anyone want it?