This paper provides a practitioner-led view on the internationalisation of the Indian Rupee, a pragmatic road map that can be considered with short-term and long-term measures, and an outline of the lessons that can be learned from the internationalisation experiences of other currencies.
The paper draws on the collective expertise of the UK’s and India’s financial and related professional services industries and addresses the following points:
- benefits and challenges of currency internationalisation
- relevance of internationalisation for the Rupee
- experiences of the Chinese Renminbi and other currencies
- the current international position of the Rupee
- short-term and long-term actions that could be taken to proceed with internationalisation of the Rupee.
The paper argues that the Rupee is today prepared for further steps towards internationalisation, following the achievement of key milestones. These milestones include the opening up of almost all sectors for foreign direct investment, deregulation of portfolio investments via foreign portfolio investment with delegated licensing, and the opening up of debt markets with offshore Rupee-denominated ‘masala’ bonds.
At the same time, the paper recognises that while India has made progress towards capital account internationalisation, there is still further to go on trade flows and interaction with trade partners in order to benefit from the full potential of India’s international trade. This journey will be particularly pronounced in the manufacturing sector, which can be a material facilitator to internationalised flows due to the multiplier effect of cross-border trade invoicing with both suppliers and distributors.
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