Rupee as an international currency

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India’s currency rupee can be made as International currency in 2 ways:

  • By making rupee as a stable currency to enable International trade or to keep it as asset.
  • By exporting more to other countries, so that other countries use these two modes of internationalization are not mutually exclusive. In a one liner statement, for a currency of trade, it needs to be a currency in which assets are held & vice versa.

Internationalization as a currency of trade

This is practically difficult task in the quick run. The reason Chinese Yuan is notably becoming a currency of trade, because China manufactures and exports almost everything. This might only change if India powers up as a manufacturer as like China.

The possible ways to make INR as a currency of International trade are:

  • To Internationalize Rupee as a safe asset, economic size matters a lot. India satisfies this criteria with its huge economic size. Even this has its limitations as India imports more than its export. The trade deficit created, takes away the advantage provided by the growth rate.
  • RBI has iron fist hold on India's capital account. To internationalize rupee, capital free flow has to be allowed. Even though the value of the Rupee is determined in the open market, RBI's open market operations help maintain its stability. Financial markets of India lack the capability in terms of the range of financial products, the volume of financial products and the volume of assets traded. Indian financial market is not strong enough to handle the additional risk of an international currency.
  • Macroeconomic policy dimensions of India could be a drawback for India. External investors must have confidence in a country's economic policies to invest in its currency. Indian economic policy is neither stable or predictable. RBI is committed to maintain low inflation but it is not followed by the government.

Formally accepted currency

Saying that Indian Rupee is accepted informally in neighboring countries Nepal, Bangladesh, Bhutan and parts of Maldives. It is even accepted as a legal tender in Zimbabwe. It was possible because India exports a lot with these countries. 'Exports' are the deciding factor in a currency becoming a currency of international trade, not imports.

Rupee's acceptability increased automatically in these countries. The Government of India never pushed for its use and may be if it does, it might harm the Indian economy in long run.

India as of now is a growing country with a very fragile economy. A push for internationalization might not be a good option as of now. INR is accepted in neighboring countries and Zimbabwe. For global acceptance, India need to become more of an export oriented nation. Indian Rupee as of now is not suitable to become a currency of trade. Sustained organic growth is required to become a stabilized international currency.

  • Barclays
  • Techstars
  • Nestholma
  • Nordea
  • Tekes
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