Context: In the backdrop of devaluation of Rupee against US Dollars, the Reserve Bank of India (RBI) has come up with steps to facilitate cross-border rupee transactions.
Relevance of the Topic: Mains: Detailed question on steps to facilitate Internationalisation of Rupee.
Suggested steps by RBI:
| Steps Suggested | Impact of Steps |
| Liberalisation of the foreign exchange regulations: Indian exporters are now allowed to open accounts in any foreign currency overseas reducing dependency on the US dollar and Euro. | Reducing transaction cost of the business promoting ease of doing business.Encouraging Indian companies to engage in the global supply chain. |
| Establishment of rupee account for non-residents: Overseas branches of authorized banks can now open INR-denominated accounts for non-residents. | Encourages foreign entities to hold and transact in INR, boosting the global presence of the currency.Attract investors in India by simplification of investment procedures |
| Promoting trade settlement in rupees: RBI's framework permits exporters and importers to invoice and settle their trade transactions in INR. | Strengthens the resilience of Indian trade against global currency volatility. |
Constraints in Internationalisation of Rupee
- Limited exports: India has limited export destinations and faces a high trade deficit that weakens the rupee position internationally.
- Focus on Consumption led growth instead of investment led growth restrains Indian rupee to strengthen its position in global market by fostering investments.
- Global dynamics: Issues like the Russia-Ukraine war placed an additional burden on the rupee due to oil price hike and US sanctions.
- Volatile investments: More than 70% investments in India are FPI that makes rupee position volatile as FPI is more susceptible to economical shocks.
More steps required for Internationalisation of Rupee
- Promoting bilateral currency swaps: More currency swap agreements with key trading partners like USA and UAE would allow India for direct exchange of INR with other countries.
- Introducing UPI internationally: Expanding the reach of UPI and Rupay cards to key destinations of trade and tourism will enhance interoperability of rupee with other international currencies.
- More focus on rupee denominated instruments: Enhancing density and penetration of rupee denominated bonds like Masala bonds will allow India to internationalise INR.
- Enhancing GIFT capacity: Enhancing IFSC GIFT city capacity in Gujarat, by providing more confessions in trade and investment will attract investment in India strengthening the position of rupee.
- Alternate currency: India should also focus on reducing dependence on the US dollar, evolving the BRICS currency can become a better alternative in this regard.
Conclusion: The RBI’s measures to promote INR in cross-border transactions mark an important step toward the internationalisation of the currency. However, sustained efforts are required to deepen partnerships, build infrastructure, and create financial instruments that increase the acceptability of INR. A comprehensive approach based on innovation, diplomacy and regulatory support can establish the rupee as a strong global currency.