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Internationalisation of the Indian Rupee UPSC NOTE

 

  • The Government of India is pursuing the internationalization of the Indian Rupee (INR).

  • An Inter-Departmental Group (IDG) of officials from the Reserve Bank of India (RBI) has cautioned that this process may initially lead to increased volatility in the exchange rate of the rupee.

  • The IDG highlighted the potential conflict between the country's obligation to supply its currency to meet global demand and its domestic monetary policies, known as the Triffin dilemma.

The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.


  • The internationalization of the rupee could amplify external shocks due to the free flow of funds into and out of the country and between currencies.

  • Despite these concerns, the IDG believes that the overall benefits of internationalization outweigh the risks, including 

    • limited exchange rate risk, 

    • lower capital costs, 

    • improved access to international financial markets, 

    • higher seigniorage benefits, and 

    • reduced foreign exchange reserve requirements.





  • The IDG has recommended a roadmap to achieve rupee internationalization, along with the adoption of a standardized approach for examining proposals on trade arrangements involving invoicing, settlement, and payment in INR and local currencies.

  • Efforts should be made to include INR as an additional settlement currency in existing multilateral mechanisms, such as the Asian Clearing Union.

  • The Reserve Bank of India clarifies that the report and its recommendations represent the views of the IDG and do not reflect the official position of the central bank.

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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Internationalisation of the Indian Rupee UPSC NOTE
Internationalisation of the Indian Rupee UPSC NOTE
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