https://sputniknews.in/20230711/will-indian-rupee-become-international-currency-anytime-soon-2938802.html
Will Indian Rupee Become International Currency Anytime Soon?
Will Indian Rupee Become International Currency Anytime Soon?
Sputnik India
India would have to become China if Rupee is to join the international currency basket soon, economists told Sputnik on Tuesday.
2023-07-11T15:56+0530
2023-07-11T15:56+0530
2023-07-11T16:08+0530
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India might have to become China if Rupee is to join the international currency basket soon, economists told Sputnik on Tuesday.The remarks of Dr. N. R. Bhanumurthy, who serves as a professor at the New Delhi-based financial institution, National Institute of Public Finance and Policy, and Dr. Nisha Taneja, an economist at the Indian Council for Research on International Economic Relations (ICRIER) come days after the country's central bank released a report on internationalization of the Indian Rupee.According to the Reserve Bank of India (RBI), the trend is pointing toward a "decrease in the share of the US Dollar in world foreign exchange reserves".The Mumbai-headquartered banking regulator highlighted that the US dollar's share in international forex reserves has come down to 58.9 percent in 2022 to about 85 percent in the 1970s.The report further mentioned that this downward trend in the dominance of the US dollar "reflects an attempt by some developing Asian economies to internationalize their currencies in order to increase their share of world trade and production".On Way to Internationalized Rupee: China Serves as ExampleIn this light, Professor Bhanumurthy opined that to promote the internationalization of the Rupee, India needs to "become China", meaning that trade volumes and currency transactions should increase to the extent of what is being achieved by Beijing right now.He added that in economic terms, India is a very small country compared to the United States and China.At present, New Delhi's trade stands at $1 trillion, including both exports and imports, and it would have to touch at least the $3 trillion mark for the Rupee to achieve a similar recognition to the Chinese currency globally.The financial expert also sought to underline that the Indian Rupee becoming an international currency has been New Delhi's long-term objective but not a short-term goal. And it is something, that would take a long time.Which Currencies Are Part of the International Currency Basket?He elaborated that India is not yet ready for Rupee's transition to an international currency as it is not a part of the international currency basket where China is already present.As per a report by Forex.com, the US Dollar, Euro, Japanese Yen, British Pound Sterling, and Chinese Renminbi are currently the most traded currencies in the world.Bhanumurthy explained that to become a part of the international currency basket, INR should be traded in the forex market, India's central bank would have to focus not only on the domestic currency demands but also on the currency demand overseas.Is Rupee Not Convertible?On the other hand, ICRIER's Taneja reckons that it is unlikely that the Indian rupee will become an international currency because of India's low share in global trade. Plus the rupee is not fully convertible."For instance, a country like Russia would be interested in rupee trade only if it could invest the surplus in India. So it becomes very important for India to have a very strong investment regime," Taneja asserted.The ICRIER professor, who specializes in international trade and investment, mentioned that India has Bilateral Investment Treaties (BITs) with only six countries and has been in the process of negotiating with several others for many years.But unless the BITs are finalized, the investment regime will remain weak and developed countries will be reluctant to engage in rupee trade with India.The RBI has allowed banks in 18 nations, including domestic and authorized foreign dealers to accept payments in Indian rupees. Among the countries that have accepted this system are Singapore, Tanzania, Bangladesh, and Russia.However, no country, including close allies India and Russia, has accomplished 100 percent trade in local currencies, as pundits predict that the road to 100 percent de-dollarization will be long.
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Will Indian Rupee Become International Currency Anytime Soon?
15:56 11.07.2023 (Updated: 16:08 11.07.2023) The long-time dominance of the greenback in the global economic order is gradually eroding as more nations are switching to trade in non-dollar currencies.
India might have to become China if Rupee is to join the international currency basket soon, economists told Sputnik on Tuesday.
The remarks of Dr. N. R. Bhanumurthy, who serves as a professor at the New Delhi-based financial institution, National Institute of Public Finance and Policy, and Dr. Nisha Taneja, an economist at the Indian Council for Research on International Economic Relations (ICRIER) come days after the country's central bank released a report on internationalization of the Indian Rupee.
According to the Reserve Bank of India (RBI), the trend is pointing toward a "decrease in the share of the US Dollar in world foreign exchange reserves".
The Mumbai-headquartered banking regulator highlighted that the US dollar's share in international forex reserves has come down to 58.9 percent in 2022 to about 85 percent in the 1970s.
The report further mentioned that this downward trend in the dominance of the US dollar "reflects an attempt by some
developing Asian economies to internationalize their currencies in order to increase their share of world trade and production".
On Way to Internationalized Rupee: China Serves as Example
In this light, Professor Bhanumurthy opined that to promote the internationalization of the Rupee, India needs to "become China", meaning that trade volumes and currency transactions should increase to the extent of what is being achieved by Beijing right now.
He added that in economic terms, India is a very small country compared to the United States and China.
At present, New Delhi's trade stands at $1 trillion, including both exports and imports, and it would have to touch at least the $3 trillion mark for the Rupee to achieve a similar recognition to the Chinese currency globally.
"Also, India needs to grow at a much faster rate than what it is doing right now. China grew at an average rate of 10 percent for three decades, resulting in its share increase in the global
trade to somewhere between 12 to 13 percent, which is huge given that India's share is just about 2-3 percent at present," Bhanumurthy told Sputnik.
The financial expert also sought to underline that the Indian Rupee becoming an international currency has been New Delhi's long-term objective but not a short-term goal. And it is something, that would take a long time.
Which Currencies Are Part of the International Currency Basket?
He elaborated that India is not yet ready for Rupee's transition to an international currency as it is not a part of the international currency basket where China is already present.
As per a report by Forex.com, the US Dollar, Euro, Japanese Yen, British Pound Sterling, and Chinese Renminbi are currently the most traded currencies in the world.
Bhanumurthy explained that to become a part of the international currency basket, INR should be traded in the forex market, India's central bank would have to focus not only on the domestic currency demands but also on the currency demand overseas.
Is Rupee Not Convertible?
On the other hand, ICRIER's Taneja reckons that it is unlikely that the Indian rupee will become an international currency because of India's low share in global trade. Plus the rupee is not fully convertible.
"India is making an effort to trade in rupees with many countries but this will go through with some countries but not with others. It is likely to be successful with
South-South trade. However, with developed countries particularly with those with whom India has a trade deficit it is likely to be more challenging," she pointed out.
"For instance, a country like Russia would be interested in rupee trade only if it could invest the surplus in India. So it becomes very important for India to have a very strong investment regime," Taneja asserted.
The ICRIER professor, who specializes in international trade and investment, mentioned that India has Bilateral Investment Treaties (BITs) with only six countries and has been in the process of negotiating with several others for many years.
But unless the BITs are finalized, the investment regime
will remain weak and developed countries will be reluctant to engage in rupee trade with India.
The RBI has allowed banks in 18 nations, including domestic and authorized foreign dealers to accept payments in Indian rupees. Among the countries that have accepted this system are Singapore, Tanzania, Bangladesh, and Russia.
However, no country, including close allies India and Russia, has accomplished 100 percent trade in local currencies, as pundits predict that the road to 100 percent de-dollarization will be long.
