Rupee internationalisation

Internationalisation is a process that involves increasing the use of the rupee in cross-border transactions. It involves promoting the rupee for import and export trade and then other current account transactions, followed by its use in capital account transactions.

• • It is a step towards De-dollarisation wherein the use of dollars as the reference currency for cross-border current or capital account transactions are discouraged.
  • Currently, the US dollar, the Euro, the Japanese yen and the pound sterling are the leading reserve currencies (or hard currencies) in the world. China’s efforts to make its currency renminbi has met with only limited success so far.
  • It is closely linked with India’s progress in the international economic system.

Advantage of Rupee Internationalisation

• • It mitigates currency risk for Indian businesses.
  • It also leads to lower transaction cost as cost of converting rupees into USD is eliminated
  • It makes India less vulnerable to foreign exchange shocks.
  • It increases India’s bargaining power in international trade.

 Is India ready for rupee internationalisation?

• • India will have to start this by adopting full capital account convertibility
  • Moving away from managed floating exchange rate systems towards more floating exchange rate systems.
  • Increased integration with the global value chain.
  • Increasing exports from India

Note: India must not be too overboard on internationalisation of rupees as it should be the priority of India to capitalise on high-growth path which it has endured for so long. Internationalisation will be the eventual outcome as India develops in due course of time. Indian rupees must be effectively used for domestic growth rather than becoming an international reserve currency.