Author : CA Anil Rana , CFO Global Finserve and Ex CFO Unitedhealth Group BPO
Vostro accounts can help reduce Global South’s dependence on the U.S. Dollar (USD), but with some nuances. Let me break it down and explain with help of How India has done it :
The Usual Problem: USD Dominance
- Most international trade, even between countries that are not the U.S., is settled in USD.
- Example: If India buys oil from Russia, traditionally both sides would quote and settle in USD.
- This creates dependence on USD reserves, adds currency conversion costs, and exposes trade to U.S. sanctions/financial system controls.
How Vostro Accounts Help
- When India sets up Special Rupee Vostro Accounts (SRVA) for foreign banks, trade partners can settle payments directly in Indian Rupees (INR) instead of USD.
- Example:
- A Russian bank opens a Vostro account with an Indian bank in INR.
- India imports oil from Russia → pays in INR to the Vostro account.
- Russia uses those INR funds to buy Indian goods (like pharma, machinery, agri products) or convert into their own currency later.
- This bypasses the need to first convert INR → USD → RUB, saving forex costs and reducing reliance on U.S. banking channels.
Benefits for India and Russia
- Reduced USD dependency → More trade in INR means less demand for dollars.
- Strengthens INR’s global role → Builds acceptance of rupee in international markets.
- Cheaper transactions → Cuts out multiple currency conversions.
- Strategic autonomy → Helps India continue trade even with countries facing U.S./EU sanctions (e.g., Russia, Iran).
For India
- According to a 2022 analysis by the Economic Times, if India were to pay for all its Russian imports in rupees instead of U.S. dollars, the country could save $30–36 billion annually in hard currency outflows. This advantage stems from reduced demand for dollars to settle trade, especially crucial when protecting the rupee from depreciation.
The Economic TimesETCFO.com - A think-tank (CPPR) estimated that in the ten months following the Ukraine invasion, India saved about $3.6 billion by purchasing discounted Russian crude via rupee-based agreements.
Centre for Public Policy Research (CPPR)
For Russia
- While specific dollar-savings numbers are not available, we see that Russian firms had accumulated roughly $8 billion in rupee balances within Indian Vostro accounts at one point. Much of that has already been spent or invested—by early 2024, the residual balance was reported to be down to $3–3.5 billion, used for Indian imports, securities, infrastructure, and defense-related purchases.
The Hindu Business Linemint
Summary Table
| Country | Estimated Forex Savings (USD) | Details |
|---|---|---|
| India | $30–36 billion annually (potential) $3.6 billion in early post-2022 months | Savings from paying for Russian imports in INR instead of USD |
| Russia | No direct savings figure reported | Utilization of accumulated INR (~$8 billion) for investments/spending; remaining balance ~$3–3.5 billion |
The Challenges
- Foreign partners must be willing to hold INR. Many prefer USD/EUR because they are widely accepted globally.
- India needs to increase exports so that countries with INR in their Vostro accounts have enough avenues to spend it back on Indian goods/services.
- Currently, Vostro-based INR trade is still a small fraction of India’s total trade (most is still USD-settled).
Bottom line:
Vostro accounts (especially rupee Vostro accounts) do help reduce India’s dependence on USD in trade settlement, but their effectiveness depends on how many countries are willing to accept INR and recycle it through trade with India. It’s a step toward de-dollarization, but not a complete solution yet.