20/05/2022
Internationalisation of Indian Ruppee
Becoming a global reserve currency is a wholesome goal because it indirectly aligns fiscal, monetary, and economic policy.The use of the rupee would reduce foreign currency risk for Indian businesses and stabilise trade. Trade in rupees means reduced dependence on the dollar and foreign currencyIt will also mean liquidity in financial markets and closer ties which augment employment in the non-farm sector.It will provide easy access to capital and help lower the cost of borrowings for Indian firms.Facilitate greater degree of integration of Indian economy with rest of the world in terms of foreign trade and international capital flows.Savings on foreign exchange transactions for Indian residents, reduced foreign exchange exposure for Indian corporate, reduction in dependence on foreign exchange reserves for balance of payment stability etc.
CONSTRAINTS
Indeed, full convertibility could bring with itself higher volatility, an increased burden on foreign debt and an effect on balance of trade (especially exports).Withdrawal of short-term funds and portfolio investments by non-residents could also be a major potential risk of internationalization of the Indian rupee.
