Finance minister Nirmala Sitharaman has reiterated the government’s intention to promote the rupee as an international currency.
In her budget speech Sitharaman said the government will simplify rules and regulations to promote foreign direct investment (FDI) and overseas investment in India, with an aim to nudge prioritization, and promote opportunities for using the rupee as a currency for overseas investments.
Internationalisation of the rupee has been on the government’s and Reserve Bank of India (RBI) agenda for many years. This year in its annual report released in May RBI said say to as part of its endeavour to internationalise the currency it will let persons residents outside India (PROIs) to open rupee accounts outside the country, allow bank lending to PROIs and also FDI and FPI intvestment through special non resident rupee and vostro accounts.
However, making rupee an international currency is easier said than done. Bankers say that global curencies like the dollar are very liquid and countries like the US still control vast amount of global trade.
“These currencies are fully convertible and taking out and bringing in large sums of money is far more easier and quicker unlike countries like India. The rupee is not fully convertible on the capital account. Also, while India’s trade is growing it is still not among the biggest in the world. To make the rupee as an international currency a lot of changes in the financial stack as well as capital account will have to be made over a period of time,” said Ashhish Vaidya, managing director DBS Bank India.
Among the regulations RBI has put in place include measures announced in July 2022 allowing an additional arrangement for invoicing, payment, and settlement of exports / imports in rupee.
Exports and imports have also been allowed to be denominated and invoiced in rupee. But banks still need prior approval from the RBI before allowing companies to use these facilities.
