GS3 · 15 marks · 250 words

International trade is centred on the dominant currency paradigm (DCM). Critically Analyze the importance of Hard currency in International trade and Discuss the potential of rupee acceptance in global trade as an alternative to dollar imperialism.

Answered by 4 toppers · CSE 2023

Macroeconomic IndicatorsTrade and Foreign InvestmentMonetary PolicyBanking and Finance

Syllabus: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

How toppers approached it

From all 4 answers · about 300 words · 50% drew a diagram.

Opening

  • A figure2 of 4
  • A definition1 of 4
  • A direct answer1 of 4

Body

  • Points and prose2 of 4
  • Points2 of 4

Close

  • A way forward2 of 4
  • No separate close1 of 4
  • A source1 of 4

The toppers’ answers

NausheenAIR 9 · CSE 2023 · 164 wordsTheir whole copy

Opening · a direct answer

Dollar ($) is the dominant currency currently in the world trade. With attempts of internationalisation of rupee, it can also join the paradigm.

Body · points and prose

Diagram
- International trade centred on dominant currency Paradigm - Major international settlements in trade relations in dominant currency - Means of settlement of international debt - Parallel currency or replaced currency in many regions. (Eg: Dollar in central American country.)

Importance of Hard currency in international trade

Diagram
- Importance - most reliable means as it doesn't fluctuate much. - proper store of value. - International settlements are made in it (Eg Dollar, Euro). - dominant currency in IMF contributions and loaning.

Potential of Rupee acceptance in global trade :-

→ Reliable fiscal deficit (5.9% as per CES '23 in FY23) → Inflationary measures are under control too (5.2% which is outside the limit but not high enough). → Broadening of rupee market through Masala bond. → Signing of currency swap agreements with 23 countries. → Settlements made in rupee with several nations like UAE. → Nostro and Vostro accounts.

However,

Contentions

  • (1) High fiscal deficits.
  • (2) Failure of Nostro and Vostro account with Russia as India does't have much export item.
  • (3) Fluctuations in rupee, due to global market.
  • (4) Current Fed tapering and flight of money.

Tarapore Committee recommendations on internationalisation of rupee must be followed.

→ Fiscal deficit within 3.5%. → Fuller account convertibility by 2060.

Close · a source

None written.

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