Economy

Internationalisation of rupee

India is aiming to make the rupee a global currency. What does internationalisation of the rupee mean?
  • Internationalisation is a process that involves increasing the use of the rupee in cross-border transactions.
  • It involves promoting the rupee for import and export trade and then other current account transactions, followed by its use in capital account transactions (transactions between residents in India and non-residents).
The leading currencies
  • Currently, the US dollar, the Euro, the Japanese yen and the pound sterling are the leading reserve currencies in the world.
  • China’s efforts to make its currency renminbi has met with only limited success so far.
 Required measures
  • Strong set-up: The internationalisation of the currency, which is closely interlinked with the nation’s economic progress, requires further opening up of the currency settlement and a strong swap and forex market.
India has allowed only full convertibility on the current account as of now.
  • Full convertibility: More importantly, it will require full convertibility of the currency on the capital account and cross-border transfer of funds without any restrictions.
What’s RBI take on it?
  • The Reserve Bank of India’s (RBI) inter-departmental group (IDG) said with India remaining one of the fastest-growing countries and showing remarkable resilience in the face of major headwinds, the rupee has the potential to become an internationalised currency.
  • These recommendations are significant, in light of the economic sanctions imposed by the US on Russia for invading Ukraine and the growing clamour for finding an alternative to the US dollar for international transactions.
Why US dollar is enjoying ‘Exorbitant Privilege’?
  • The dollar’s position is supported by a range of factors, including the
    • size of the US economy
    • the reach of its trade and financial networks
    • the depth and liquidity of US financial markets
    • a history of macroeconomic stability
    • currency convertibility
    • lack of viable alternatives
Post Views: 166

Leave a Comment