A number of big decisions were taken at the RBI’s October review, with Governor Sanjay Malhotra announcing a slew of measures to promote the use of the rupee for international trade. “We have been making steady progress in the use of Indian Rupee for international trade,” said the RBI chief.
Here’s a summary of the key measures:
The arrangement will enable authorised dealer banks — or RBI-authorised commercial banks to conduct forex transactions and manage cross-border monetary activities — in India and their overseas branches in these three countries to lend in rupee to persons resident in Bhutan, Nepal and Sri Lanka.
The move is part of the RBI’s broader efforts at progressively liberalising regulations under the Foreign Exchange Management Act (FEMA) — the law governing forex transactions in the country.
These steps are set to offer benefits like more stable exchange rates for businesses while making it easier to initiate cross-border transactions, say financial experts.
What is rupee internationalisation?
It is the process of making the domestic currency widely accepted and used for purposes like global trade, finance and investment. When “internationalised”, a currency becomes available and widely accepted for dealing in goods and services between countries through cross-border trade. It is a characteristic that be used for financial transactions like investments and loans abroad without converting money to another currency first, offering advantages such as reduced transaction costs and lower risks related to rate fluctuations.
Simply put, currency internationalisation strengthens the global role of the currency — making it a stable and trusted option internationally.
Why is the RBI focusing on rupee internationalisation?
The RBI is to increase the use of the rupee for international trade and finance.
Typically, internationalisation is achieved by enabling the home country’s banks to lend money to foreign entities in rupees, enabling rupee-based trade settlements via foreign currency accounts known as special rupee vostro accounts. This also promotes the use of rupees in bilateral trade settlements with foreign central banks, reducing dependence on the dollar or the euro.
Currency internationalisation also promotes the home country’s economic influence by encouraging the use of the currency as a commonly used international currency.
