Read | Rupee goes global: Road ahead is fraught with risks It has also enjoyed some international support with the arrangement of rupee denominated trade being at various levels of completion with Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda and the United Kingdom. The internationalisation of the rupee has been the subject of many policy initiatives and discussions by the Indian government. This allows for importers and exporters to make/redeem payments in INR, with the same being adjusted against the Special Vostro account of the corresponding bank of the partner country. The Vostro-based payment must be matched with a payment in free foreign currency, and notably, the remission of the aforesaid foreign currency by the buyer to its non-resident bank will be considered as export realization under the FTP.Īn alternative to the above mechanism is also allowed via settling transactions through “Special Rupee Vostro Accounts” operated by certain authorized banks.
However, this must be done through a freely convertible Vostro account of a non-resident bank, not situated in a country which is part of the Asian Clearing Union (ACU), Nepal or Bhutan.2 The FTP also places minor additional conditions to allow said realization, but notably, the FTP also allows exports in INR to notified countries under the “Import for Export” mechanism.3 These provisions give substantial impetus towards internationalizing the Indian Rupee. The new FTP provides for the settlement of foreign trade in rupees for both imports and exports. Simply put, the internationalisation of a currency refers to its ability to be freely transacted between residents and non-residents and act as a reserve currency for global trade. The initiative by the Government of India has come at about the right time where India is emerging as the only large economy growing above the world growth rate.
The RBI Report on Currency and Finance for 2020-21 stated, “Looking ahead, the emergence of the Indian Rupee as an international currency appears inevitable.”1 Against this backdrop, it seems likely that the newly notified Foreign Trade Policy 2023 has provided the policy springboard to turn this prediction into reality.
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