Internationalisation of Rupee
Q. Which of the following are the effects/benefits of Internationalization of Rupee?
1) Savings on foreign exchange transactions for Indian residents
2) Exporters from other countries agree to take payment in rupees
3) Currency risks in international borrowings are borne by lenders
4) Reduction in dependence on foreign exchange reserves- Published on 10 May 16a. 2, 3
b. 1, 3, 4
c. 1, 2, 4
d. All of the above
ANSWER: All of the above
- Internationalization of Rupee will facilitate greater degree of integration of Indian economy with rest of the world in terms of foreign trade and international capital flows.
- Key benefits of internationalization of Rupee include savings on foreign exchange transactions for Indian residents, reduced foreign exchange exposure for Indian corporate, reduction in dependence on foreign exchange reserves for balance of payment stability etc.
- According to the central bank ED, internationalization of the currency refers to a state where exporters from other countries agree to take payment in rupees and where the currency risks in international borrowings are borne by lenders rather than borrowers in India.
- One of the important drivers for internationalization of a currency is the country’s share in global merchandise and commercial services trade. India’s percentage share in the global trade is still on the lower side and it limits the pricing ability of domestic businesses in Indian Rupee.
- Moreover, the share of Indian Rupee in the Global foreign exchange market turnover at present is also very low. Internationalization of Indian currency would also require full capital account convertibility.
- As a policy, government has followed a gradual and cautious approach in opening up the capital account. The capital account is being progressively liberalized in accordance with the evolving macro-economic conditions and requirements of the Indian industries, individuals and financial sectors. Government has been taking measures to promote the internationalization of the Indian Rupee.
