Internationalisation of Rupee

Internationalisation of Rupee

• Context (IE): RBI appointed a working group to enhance the global acceptance of the rupee.

Major Findings of the Working Group

Rupee has the potential to become an internationalised currency

• India has shown remarkable resilience despite significant headwinds globally.
• Higher usage of the rupee in international trade and capital account transactions will give the domestic current a progressively international presence.

Rupee as a designated foreign currency

• The recent official inclusion of the rupee as a designated foreign currency by Sri Lanka signifies a positive development for the gradual internationalisation of India’s domestic currency.
• India also has upheld long-standing currency agreements with Bhutan and Nepal that involve the utilisation of the rupee.

Recommendations provided by the working group

Short-term measures

• Allow non-residents to open rupee accounts. The ability to open accounts outside the country of the currency is a foundational element of the internationalisation of a currency
• Step up measures for including Indian Government Bonds (IGBs) in global bond indices.
• Rationalize the FPI regime to facilitate foreign investments into the Indian debt markets (both government and corporate).

Medium-term measures

• Review withholding tax for masala bonds issuances.
• Expand the Real Time Gross Settlement (RTGS) system for settling international transactions.
• Include the rupee in the Continuous Linked Settlement (CLS) system.

Long-term measures

• Include the rupee in the Special Drawing Rights (SDR) basket.
• Use bilateral and multilateral payment and settlement mechanisms, such as Asian Clearing Union (ACU), to internationalise the rupee.