Internationalisation of Indian Rupee - What does it hold?
In the wake of global market fluctuations and geo-political tensions, India has taken a step towards internationalising the Indian Rupees to survive the volatile exchange rates and inflation. The Reserve Bank of India has recently announced a framework to fuel an attempt towards the same. Here are some key points on internationalisation of INR:
Internationalisation of currency allows - liabilities/assets to be held by both residents and non-residents to hold tradable currency balances beyond issuing country’s territory and recognition for global trade.
According to the State Bank of India, in the backdrop of geopolitical tensions triggering capital outflows in the global economy, the Internationalisation of the rupee is considered a critical move and requires extreme conscious efforts.
In the current scenario of volatility in the foreign exchange market, India’s Foreign Exchange Reserve (FER) accounted for US$ 571.5 Billion in July 2022; a drastic decrease from US$ 639 Billion in September 2021
Internationalising of Rupee will help arrest the volatility and save valuable FER for serving urgent needs of capital outflows amidst socio-political turmoil
Benefits in Store - Mitigation of exchange rate risks, lowered transaction costs of cross-border trade and investment, controlling rupee depreciation and inflation caused by fluctuating prices of commodities in the global market.
The Hard Part - Complicated Monetary Policies, the flow of uncontrolled capital, and preparing for the sensitive exchange rate market.
Tending to the growing interest in global trading in Indian currency, for export-import transactions, invoicing and payment, an additional arrangement to be made in Indian Rupees, says the circular issued by RBI to banks in July 2022.
Strong economic fundamentals and regulations need to be framed for benefiting from this ambitious step. Interested in knowing more about how Internationalising INR can influence your business? Let’s discuss!
