What's "Internationalising the rupee"? Why is it discussed?
To speed up the rupee’s internationalisation, a
working committee created by the Reserve Bank of India suggested adding it to
the Special Drawing Rights (SDR) basket and revising the FPI regime.
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What
is Internationalising of Rupee?
As a currency becomes more widely used for international
trade, it is said to be “Internationalised.” That’s good news for the
rupee because it implies more transactions can be made abroad using the Indian
currency.
One way to do this is to advocate for the use of the
rupee in international trade and current accounts. These deals can only be made between Indian citizens
and those who do not live in India.
Benefits
of Internationalising of Rupee?
- By making the Rupee more international,
there will be less need to convert currencies. This will lower the costs of
doing business internationally for both businesses and people. This could make
it more appealing for foreign companies to conduct business in India as well as
make Indian exports cheaper in world markets. - When the Rupee is used a lot in foreign
trade, it can make prices easier to understand. This can help Indian businesses
understand the conditions of the global market better and change their pricing
tactics to match. - By making the Rupee an international
currency, foreign transactions can be settled faster and more efficiently. This
can help Indian companies by making it easier and cheaper to send money across
borders. - An internationalized Rupee can help
boost international trade by making it easier and cheaper for Indian companies
to do business with their counterparts around the world. This could lead to
more trade and more money coming into the country. - An internationalised Rupee can reduce
the Reserve Bank of India’s (RBI) cost of holding foreign reserves. When the
Rupee is extensively used and accepted in international transactions, the
Reserve Bank of India (RBI) may not be required to maintain as much foreign
currency to run its operations, resulting in cost savings.
Existing
Challenges to Internationalisation of the Rupee
The Indian rupee is not
entirely convertible, which means that there are limits on how it can be used
for things like capital trades. This limits how often it can be used in foreign
business and finance.
The 2016 demonetization
and the recent removal of the 2,000 note have made it harder for people to
trust the rupee, especially in Bhutan and Nepal, which are close by.
Even though people have
tried to use rupees to deal with about 18 countries, the number of transactions
has stayed low.
Also, talks with Russia
concerning trade in rupees have been slow because of worries about the value of
the currency going down and a lack of knowledge about that.
The US dollar has more
advantages than any other currency in the world. It is used in most business
deals around the world. This is mostly because the US economy is so big, its
financial networks are so big, and its financial markets are so deep and open. The lack of good
options is also a big reason why the dollar is so strong.
The group of people who
work for the RBI said that the Chinese renminbi is the “obvious”
competitor to the US dollar. But that is going to rely on how the trade war
between the two countries goes.
The Reserve Bank of
India (RBI) has given 18 countries’ banks permission to use the rupee to make payments.
Countries like Sri Lanka, Israel, Russia, Germany, Singapore, and the United
Kingdom are on this list. Besides this, 64 other countries have said they want
to trade in rupees with India.
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