Q.3 What is Internationalization of Rupee?
Ans: Internationalization of Rupee refers to a process that involves increasing the use of the rupee in cross-border transactions. It involves promoting the rupee for import and export trade and then other current account transactions, followed by its use in capital account transactions.
| Source: Current Affairs |
| Keywords: Exchange Rate Risks, cross-border transactions , import and export trade, current account transactions |
| Extra Info : Benefits of Internationalization of Rupee Reduces Vulnerability: Reducing dependence on foreign currencies (particularly dollar), it will shield the economy from sudden exchange rate fluctuations, currency crises, and inflationary pressures. Limits Exchange Rate Risks: Protection from currency volatility not only reduces the cost of doing business, it also enables better growth of business, improving the chances for Indian businesses to grow globally.Reduces Requirement of Forex Reserves: It reduces the requirement to maintain and depend on large foreign exchange reserves in convertible currencies to manage external vulnerabilities.Deficit Financing: A globally accepted INR allows the Indian government to issue debt in its own currency to international investors, making it easier to manage fiscal deficits without exchange rate risks.Strengthening India’s Financial Markets: Greater global demand for INR increases foreign participation in Indian financial markets, such as bonds and equity bringing in long-term investments. |