RBI Report Urges India to Promote Global Use of its Currency and Bond Market Integration
A report released by the Reserve Bank of India (RBI) recommends that India take significant measures to enhance the international usage of its currency, the Indian Rupee (INR). The report suggests including Indian debt in global bond indexes, permitting offshore banking services in INR, and reviewing taxes on masala bonds, among other initiatives.
The report states that the INR has the potential to become an international currency due to India’s robust economic growth and remarkable resilience even in challenging times. It emphasizes that increased utilization of the INR for international trade invoicing, settlement, and capital account transactions will progressively establish the currency’s presence on the global stage.
The RBI has already permitted 17 banks to settle trade in rupees across 18 countries, and 65 vostro accounts have been opened for this purpose, as announced by RBI Governor Shaktikanta Das in May. However, India’s previous attempts to settle trade with Russia in rupees for crude oil have faced challenges, resulting in an accumulation of the currency in banks.
The report suggests several recommendations to further promote the internationalization of the INR. This includes integrating Indian payment systems with those of other countries, facilitating the launch of investment pools denominated in INR by the Bank for International Settlements (BIS), and reviewing tax issues to harmonize India’s financial market tax regime with those of other countries.
According to the report, the long-term goal is for the INR to attain a level of widespread acceptance and preference by other economies as a “vehicle currency.” Furthermore, efforts should be made to include the INR in the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) basket.
By implementing these recommendations, India aims to enhance the global reach and acceptance of the INR, bolster its bond market integration, and position itself as a prominent player in international financial markets. These endeavors could contribute to the further growth and development of India’s economy on the global stage.
