Internationalisation of the Rupee

The inter-departmental group on the internationalisation of the INR (rupee) set up by the Reserve Bank of India (RBI) submitted its report this month. The report defines internationalisation of a currency as a steady shift towards full capital account convertibility to make it freely convertible for international financial transactions and traces out a road map for its implementation.

Noting that the rupee has significant potential to emerge as an international currency given the rapid growth and remarkable resilience of the Indian economy, the report recounts the various benefits from such a move. This would include reduction of exchange rate risks, improved access to international financial markets, lower cost of capital, higher seigniorage benefits and smaller foreign exchange reserve requirements. On the debit side, internationalisation can increase volatility in money and exchange markets and make the monetary policy framework more complex.