Internationalisation of the Rupee: RBI's New Measures and Strengthening India-Nepal Economic Ties
UPSC Relevance
Prelims: Indian Economy (RBI, Monetary Policy, Internationalisation of Rupee, Capital Account, Vostro Accounts, Balance of Payments, FDI); International Relations (India-Nepal).
Mains:
General Studies Paper 2 (International Relations): "India and its neighborhood- relations" (India-Nepal); "Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests."
General Studies Paper 3 (Economy): "Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment"; "Liberalization... effects on the economy" (Capital account liberalization).
Key Highlights from the News
To internationalise the Indian rupee (INR), the Reserve Bank of India (RBI) announced three new measures.
Authorised dealer (AD) banks will be allowed to provide loans in Indian Rupees (INR) for cross-border transactions to non-residents of Nepal, Bhutan, and Sri Lanka.
Special Rupee Vostro Accounts of foreign banks will be allowed to invest in corporate bonds and commercial papers, in addition to Government Securities.
A transparent reference rate will be established for the currencies of major trading partners to facilitate rupee-based trade.
These measures will significantly help the economy of Nepal, especially small businesses facing working capital issues.
This will help give Indian Rupee (INR as preferred currency) preference over the US dollar in India-Nepal trade, and reduce the pressure on Nepal's forex reserves.
India is Nepal's largest trading partner. 65 per cent of Nepal's international trade is with India.
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