The US dollar, Euro, Japanese Yen, British Pound, and to a lesser extent the Chinese Yuan currently hold the distinction of being an international currency. India has taken a significant step toward achieving this status for the Indian rupee.

But what does it mean for a currency to be international and why is India making this move? What are the risks involved?

Rupee goes global:
A currency that is widely accepted as a means of payment across numerous nations is known as an international currency. India has been working towards the internationalization of the rupee for years. In 2013, the Reserve Bank of India allowed foreign investors to hold ‘masala bonds.’ These were rupee-denominated bonds, making it easier for foreign investors to buy and sell such assets.In 2015, the RBI allowed foreign investors to trade in rupee-denominated derivatives. In 2019, the Indian government began a process of liberalizing the exchange rate, making the rupee more attractive as a reserve currency.

Now is an opportune time for rupee internationalization:
The demand for the rupee is rising as a result of the booming commerce and investment in India's economy. With global corporations opening up facilities in India to tap into the nation's sizable and expanding market, the nation is evolving into a more alluring location for foreign investment. Data from the RBI shows that from $12 billion in 2008 to $80 billion in 2020, foreign portfolio investments in India have increased. Increased trade and investment opportunities will result from the rupee's internationalisation as India's economy becomes more integrated with the world economy.

What are the risks?
The economy and political stability of India are linked to the value of the rupee, and both factors are susceptible to changes brought on by things like elections, economic slowdowns, and geopolitical tensions. If there is an abrupt surge in demand, the rupee may become more volatile. The rupee's value would vary more, which would make it exceedingly difficult for enterprises and investors to plan for future trade and business operations in India. The possibility that the dollar and pound might compete with the rupee as it becomes more active globally is another. This might result in the rupee's depreciation, which would raise the cost of products and services from India on global markets.

Should the rupee go international, despite risks?
In the long run, the advantages of the rupee going worldwide might outweigh the disadvantages. According to the Finance Minister Nirmala Sitharaman in 2022, India received 65% more FDI during the Modi administration than it did during the previous 10 years of governance. In fact, the rupee is already well on it’s way to becoming an international currency. In December 2022, India and Russia completed their first trade settlement in rupees, as part of the International Settlement of Trade. Sri Lanka, Bangladesh, Mauritius and some other countries are already considering the settlement of bilateral trade in Indian rupees.

If done strategically, the rupee going global will be beneficial to India as it would further integrate our economy with the global economy.

#corequestions #rupee #dollar #budget2023 #upi #upipayments #digitalpayments

0:00 - Introduction
0:48 - What is an International currency?
1:16 - Origin of currency
1:56 - Pound becomes international currency
2:38 - Rupee goes international
3:27 - Indian economy growing
4:02 - Benefits of internationalization of rupee
4:37 - Risks of rupee going international
5:31 - How can govt reduce risks

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