RBI committee suggests steps for rupee internationalization

The Reserve Bank committee suggested measures to internationalize the Indian rupee, including adding it to the IMF’s SDR basket.

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On Wednesday, a committee established by the Reserve Bank made various short- and long-term recommendations for the internationalization of the Indian rupee. This includes initiatives to add Indian rupees to the Special Drawing Rights (SDR) basket maintained by the IMF.

The IMF created the SDR as a global reserve asset to supplement the official reserves of its member nations. It represents a potential claim against the freely tradable currencies of IMF members. SDRs can thus offer a country with liquidity. The SDR is defined by a basket of currencies, including the US dollar, euro, Chinese yuan, Japanese yen, and British pound.

The Inter-Departmental Group (IDG), headed by RBI executive director RS Ratho, said that internationalization is a process rather than an event, with continuous efforts to build upon all the initiatives that have been taken in the past.

The panel made recommendations for short-term actions, stating that it is necessary to create a template and use a standardized approach to evaluate proposals for bilateral and multilateral trade agreements for invoicing, settlement, and payment in INR and local currencies as well as to encourage non-residents to open INR accounts (other than nostro accounts of overseas banks) both inside and outside of India.

The IDG of the Reserve Bank of India (RBI) said that over the long term, India will achieve higher levels of trade linkages with other countries and improved macro-economic parameters and the INR may ascend to a level where it would be widely used and preferred by other economies as a ‘vehicle currency’.