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What's the article about?
- It talks about the internationalisation of the rupee.
Relevance:
- GS3:Indian Economy and related issues; Effects of Liberalization on the Economy;
- Prelims
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What is meant by internationalisation of the rupee?
Benefits of internationalization of Rupee:
Challenges in Internationalisation of Rupee:
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Analysis:
- At a time geopolitical tensions are rising and threaten to split the world into “two trade blocs, two financial systems, two currency blocks, two payment systems and two separate world-wide webs” it is natural that countries like India would push settlement of trade in local currencies.
- Four months ago, the RBI notified invoicing and settlement of trade transactions in rupees to “support the increasing interest of the global trading community in INR”.
- And now Sri Lanka has acceded to India’s request to designate the rupee as an international currency.
- Sri Lanka thus can export to India and get paid in the Indian rupee, which can then be used for imports from India.
- Of late, corporates in selected jurisdictions have also been utilising non-dollar currencies to procure crude and other commodities like coal to by-pass Western sanctions, striking deals in the renminbi, the Hong Kong dollar and the UAE dirham pairs, according to a SBI research report.
- India has prepared a concept paper regarding rupee-dirham trade, and the central banks of both nations are discussing the creation of a mechanism to facilitate settlement in local currencies.
Way Forward:
- Although India’s exports of goods and services are growing rapidly, they currently account for only 2.4% of global exports of goods and services.
- More critical mass is necessary for internationalisation of the rupee. As indicated in RBI’s payments vision document for 2025, the rupee’s inclusion in the continuous linked settlement initiative, which provides protection for cross-currency settlement in 18 currencies, would help in a big way.
