Even though rupee invoicing for international transactions was allowed earlier, surplus rupee were not allowed to be channeled back into Rupee assets. With the help of a Vostro account now, instead of paying and receiving US dollars, the invoice will be made in Indian rupees if the counterparty has a Rupee Vostro account. Here, both the parties involved have to incur the conversion expenses and bear the risk of foreign exchange rate fluctuations. The seller will receive those dollars, which is then converted into euro. For example, if an Indian buyer enters into a transaction with a seller from Germany, the Indian buyer has to first convert his rupees into US dollars. Since the US Dollar is the world’s reserve currency, most of these transactions are settled in dollars. When countries import and export goods and services, they have to make payments in a foreign currency.
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