Internationalising the rupee without the ‘coin tossing’
The government’s announcement of a long-term road map for further internationalisation of the rupee can turn out to be a positive exercise. Very little international demand The rupee is far from being internationalised — the daily average share for the rupee in the global foreign exchange market hovers around ~1.6%, while India’s share of global goods trade is ~2%. Ongoing negotiations with Russia to settle trade in rupees have been slow-going, with Russia expected to have an annual rupee surplus of over $40 billion — reports indicate that Russian banks have been averse to the trade, given the risk of further currency depreciation and a lack of awareness among traders about local currency facilities. Additionally, the RBI should pursue a deeper and more liquid rupee bond market, enabling foreign investors and Indian trade partners to have more investment options in rupees, enabling its international use. Additional currency swap agreements would further allow India to settle trade and investment transactions in rupees, without resorting to a reserve currency such as the dollar.
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