Note4Students
From UPSC perspective, the following things are important :
Prelims level: Global Currency
Mains level: Indian Trades;
Why in the news?
PM Modi asked the RBI to prepare a 10-year strategy to make the Indian rupee a globally “accessible and acceptable” currency and to meet the credit needs of every segment of the country
What is Global Currency?A global currency refers to a single currency that is used by every country in the world. This concept involves all nations adopting the same currency for international trade and transactions |
What are the major challenges for India to make Rupeea a Global Currency?
- Economic Stability: The Indian economy would need to demonstrate consistent stability and growth to inspire confidence among international investors and users of the currency.
- Liquidity in Financial Market Development: These markets need to be deep and liquid to accommodate large volumes of international transactions denominated in INR.
- Capital Controls: India currently has restrictions on capital flows in and out of the country. These would need to be eased to facilitate international trade and investment denominated in INR.
- Legal and Regulatory Framework: There would need to be robust legal and regulatory frameworks in place to govern the use of the INR in international transactions, including clearing and settlement systems, as well as dispute resolution mechanisms.
- International/ Investors Acceptance: Convincing other countries, businesses, and individuals to adopt the INR as a global currency would require concerted diplomatic efforts, as well as initiatives to promote its use in international trade and finance.
- Currency Convertibility: Full convertibility of the INR would be necessary for it to become a global currency.
Indian Efforts to Make Rupee a Global Currency:
- RBI’s Roadmap for Rupee Internationalization: The RBI has published a report outlining a roadmap for the internationalization of the Rupee. This roadmap recommends actions such as including the Rupee in the Special Drawing Rights (SDR) basket, promoting its use in trade invoicing and settlement, facilitating its use in offshore markets, and developing financial products denominated in Rupees.
- Promoting Use of Local Currencies for Cross-Border Transactions: India has been engaging in agreements with countries like the UAE to promote the use of local currencies, including the Rupee, for cross-border transactions.
Way Forward:
- Need for Transactions in Rupee: To be an accepted International Currency, the Indian rupee is to be freely used in transactions by residents and non-residents and as a reserve currency for global trade.
- Need to increase the Exports: Indian Trades need to be promoted beyond the Asian region. All export and import transactions need to be invoiced in Indian rupees.
- Reducing the Constraints: Legal and Regulatory frameworks need to be freed to attract investors for their business profits without hampering security concerns.
https://www.hindustantimes.com/india-news/lets-make-a-global-currency-pm-to-rbi-101711996093588.html
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