RBI sees global role for Rupee

Although the study mooted the idea of floating rupee as a global currency, it however asked the Centre to cautiously assess the pros and cons of such an action since it may increase volatility in the foreign exchange markets.

Titled Internationalisation of Currency: The case of Indian Rupee and Chinese Renminbi, the study authored by Rajiv Ranjan and Anand Prakash while noting that it is unlikely for the dollar to lose its predominance as the global reserve currency in foreseeable future, said, “the current crisis has, however, thrown open the debate on the need for new global reserve currency in case the US economy fails to make a significant turnaround and the weakness of the US dollar persists.”

Natural contenders
Accordingly, it pointed out that the Yuan and the Rupee are natural contenders for international currency status among emerging market currencies. Even as China is “far from ready” to achieve global reserve currency status, India needs to meet “all the necessary preconditions... before it could proceed further,” the study emphasised. However, there are problems associated with internationalisation of the rupee as it could increase volatility of its exchange rate, it said.
While pointing out the difficulty in positioning Rupee as a global reserve, it said that unlike China – armed with a large current account surplus – India has a significant trade and current account deficit. 

Strong performance
Further, it noted that the strength exhibited by the Indian rupee and continued good performance of the Indian economy have raised the issue of greater internationalisation of the currency and that India needs to proactively take steps to increase the role of the domestic currency in the region.

Per se, internationalisation of rupee would also require India to make its currency fully convertible. Currently, there are curbs on such convertibility, with regard to capital accounts like stocks are concerned.

The study also pointed out that till date India has followed a calibrated approach towards capital account liberalisation and does not permit the rupee to be officially used for international transactions at present excepting with Nepal and Bhutan, though there are indications of the Rupee gaining acceptability in other countries.
DH News Service