Kunal RastogiAIR 15 · CSE 2023 · 311 wordsTheir whole copy
Opening · a date or context
Recent Russia-Ukraine Crisis have shown the possibility of weaponisation of currency system & function of store of value, medium of exchange. In this context, ES-2022-23 discuss about internationalisation and de-dollarisation.
| Internationalisation of Rupee | De-dollarisation |
|---|---|
| (1) Allowing utilisation of Rupee for currency functions beyond the boundaries. | (1) Restricting the use of dollar in transactions in the global financial system |
| (2) Promotes Rupee based trade settlement, and medium of exchange | (2) discourages use of dollar |
| (3) Increase Rupee Acceptance in financial derivate | (3) Promotes use of other reserve |
| Stock markets and as commodity exchange | currency like Yuan, Euro in financial market |
| (4) Proposes to include Rupee in SDR basket, thus making its acceptance easier | (4) Proposes to reduce the weight of dollar in SDR, its share being replaced by other currency |
Body · points and prose
Benefits of Internationalisation of Rupee
(1) Increase in Prestige by possible inclusion in SDR-global reserve basket
(2) Make foreign currency borrowing cheaper. e.g. reduce coupon on Masala bonds
(3) Greater FDI and decrease in transaction fee charged by SWIFT System
(4) Make exports-oriented economy farther, deeper.
(5) Cushion Indian currency against global financial risk, as borrowing would be in domestic currency
(6) Reduce Requirement of high FOREX reserve
Challenges Associated with Internationalisation
(1) Partial current account convertability
(2) Limited use of Rupee in international trade transaction. e.g. CMIE → only 2%.
(3) Volatility of Rupee decrease its acceptance.
(4) Hegemony of dollar. e.g. World Bank → 80% trade in dollars
(5) RBI dirty float and reduced govt credit Rating by Moody (BBB+) discourages invetors.
Way forward
(1) Use BRICS and other currency Swap Agreements (currently 23)
(2) Tarapore Committee Reccomendation.
(3) Increase Exports
Close · a way forward
Above steps would ensure sovereignty of India by internationalisation of Rupee ultimately reducing the dollar dependence.