scorecardresearchRBI group suggests multi­pronged plan to internationalise the rupee: Report

RBI group suggests multi­pronged plan to internationalise the rupee: Report

Updated: 06 Jul 2023, 11:39 AM IST
TL;DR.

The key role that bilateral currency swaps can play in promoting the use of the rupee for settling foreign trade, to achieve internationalisation, the group noted.

Internationalisation of the rupee is a continuous process involving progressive capital account convertibility,

Internationalisation of the rupee is a continuous process involving progressive capital account convertibility,

To internationalise the rupee, RBI’s inter­departmental group (IDG) has recommended a number of measures. These include facilitating a Local Currency Settlement (LCS) framework for bilateral transactions in local currencies, and encouraging the opening of rupee accounts for non­residents, both within and outside India, reported Business Line.

The group noted the important role that bilateral currency swaps can play in promoting the use of the rupee for settling foreign trade, to achieve internationalisation.

Internationalisation of the rupee is a continuous process involving progressive capital account convertibility, wherein the domestic currency increasingly acquires the character of a de facto freely convertible currency for international financial transactions.

The process can lower transaction costs of cross border trade and investment operations by mitigating exchange rate risk.

Chaired by RBI Executive Director Radha Shyam Ratho, the IDG recommended nine measures over the short term, including adopting a standardised approach for examining the proposals on bilateral and multilateral trade arrangements for invoicing, settlement and payment in the rupee and local currencies.

The group also recommended a review of taxes on masala bonds, examination of taxation issues in financial markets, and allowing banking services in rupee outside India through off­shore bank branches.

Over the long term, it said India will achieve higher level of trade linkages and the rupee may ascend to a level where it would be widely used and preferred by other economies as a “vehicle currency”.

 

First Published: 06 Jul 2023, 11:39 AM IST