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!

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