RBI panel recommends measures for internationalisation of rupee

The group was constituted by RBI Deputy Governor T Rabi Sankar to review the position of the rupee as an international currency and to frame a road map for the internationalisation of the domestic currency.

Internationalisation of the rupee is a process that involves increasing use of the local currency in cross-border transactions.

The IDG said that the rupee has the potential to become an internationalised currency as India is one of the fastest growing countries and has shown remarkable resilience even in the face of major headwinds.

It said that higher usage of the rupee in invoicing and settlement of international trade, as well as in capital account transactions, will give the domestic current a progressively international presence.

Last year in July, the RBI put in place a mechanism to settle international trade in rupees in order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in the rupee.

The group said while the country have had the rupee arrangements with Bhutan and Nepal for a long time, the recent decision by Sri Lanka to formally include the rupee as a designated foreign currency augurs well for incremental internationalisation of the domestic currency.

As part of the long term measures to achieve internationalisation of the rupee, the group suggested inclusion of the rupee in SDR (Special Drawing Rights) basket.

The SDR is an international reserve asset created by the IMF (International Monetary Fund) to supplement the official reserves of its member countries. The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.

Suggesting short term measures, the group said a standardised approach or /uniform template should be adopted for examining all proposals that involve bilateral and multilateral trade agreements/arrangements for invoicing, settlement and payment in the rupee and local currencies of counterpart countries, local currency settlement mechanisms and bilateral swaps.

It recommended use of the existing bilateral and multilateral payment and settlement mechanisms, such as ACU (Asian Clearing Union), to internationalise the rupee.

It said that non-residents should be allowed to open rupee account as the ability to open accounts outside the country of the currency is a foundational element of the internationalisation of a currency.

The RBI should also look at expanding the footprint of rupee denominated payment mechanism, it said, The group said the RBI should step up measures for the inclusion of Indian Government Bonds (IGBs) in global bond indices and also suggested rationalisation of the FPI regime to facilitate a more conducive environment for foreign investments into the Indian debt markets (both government and corporate).

For the medium term, the group recommended review of withholding tax for masala bonds issuances, expansion of RTGS (Real Time Gross Settlement) system for settling international transactions and inclusion of the rupee in Continuous Linked Settlement (CLS) system.

The report and its recommendations reflect the views of the committee and do not reflect the RBI’s official position.