A Reserve Bank-appointed committee on Wednesday suggested a host of short-term and long-term measures for internationalisation of Indian rupee, including efforts for inclusion of the Indian currency in IMF's Special Drawing Rights (SDR) basket.
SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries. It is a potential claim on the freely usable currencies of IMF members. As such, SDRs can provide a country with liquidity. A basket of currencies defines the SDR: the US dollar, euro, Chinese yuan, Japanese yen, and the British pound.
The Inter Departmental Group (IDG) headed by RBI executive director R S Ratho in its report said that internationalisation is a process rather than an event, with continuous efforts to build upon all the initiatives that have been taken in the past.
Suggesting short-term measures, the panel said, there is a need to design a template and adopt a standardised approach for examining the proposals on bilateral and multilateral trade arrangements for invoicing, settlement and payment in INR and local currencies and encourage opening of INR accounts for non-residents (other than nostro accounts of overseas banks) both in India and outside India.
It also recommended integrating Indian payment systems with other countries for cross-border transactions and strengthening financial markets by fostering a global 24x5 INR market and promoting India as the hub for INR transactions and price discovery.
There is also a need for recalibrating the FPI regime and rationalizing/harmonizing the extant Know Your Customer (KYC) guidelines and provide equitable incentives to exporters for INR trade settlement.
With regard to medium-term strategy, the panel said, there is a need to review taxes on Masala bonds and international use of Real Time Gross Settlement (RTGS) for cross-border trade transactions and inclusion of INR as a direct settlement currency in the Continuous Linked Settlement (CLS) system.
Examination of taxation issues in financial markets to harmonise tax regimes of India and other financial centres and allowing banking services in INR outside India through off-shore branches of Indian banks were part of medium-term suggestion given by the Reserve Bank panel.
The Inter-Departmental Group (IDG) of the Reserve Bank of India (RBI) was formed in December 2021.
The objective of the IDG was to review the extant position of INR as an international currency and to frame a road map for the internationalisation of INR. The IDG has since submitted its report containing its final set of recommendations.
The report and its recommendations reflect the views of the IDG and do not in any way reflect the official position of the Reserve Bank of India. The recommendations of the report will be examined for implementation, it said.
The IDG said that over the long term, India will achieve higher level of trade linkages with other countries and improved macro-economic parameters, and INR may ascend to a level where it would be widely used and preferred by other economies as a 'vehicle currency'.
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