Internationalisation of Indian currency: The rupee challenge

Source: The post is based on an article “Internationalisation of Indian currency: The rupee challenge” published in The Indian Express on 8th July 2023.

Syllabus: GS 3 – Indian Economy – Monetary Policy, Growth & Development

Relevance: About the benefits and challenges associated with Internationalization of rupee.

News: Reserve Bank of India’s (RBI) Inter-Departmental Group (IDG) has recommended several measures for Internationalization of rupee.

What is internationalization of rupee?

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What are the benefits of internationalization of rupee?

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It also protects the economy from sudden stops and reversals of capital flows.

What are the different measures recommended by the IDG?

Read Here: Internationalization of the Rupee: Explained

What are the challenges with the internationalization of the rupee?

As per reports, even though the central bank had allowed banks in July last year to settle international trade in rupees with 18 countries, there has been little progress in adopting this facility.

For example, Russia favors the yuan or the dirham as transaction mediums, even though there has been a significant increase in oil imports from India.

What can be the way ahead?

The process of internationalising the Indian rupee requires permitting easier and more unconstrained transactions in the rupee.

The development of financial and foreign exchange markets will also play a critical role in determining the pace of internationalization of the currency.

Further, as the Indian economy grows in size and as its trade linkages with other countries grow stronger, more space will be created for using the rupee in international transactions.

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