The Hindu Business Line : Rupee in the driver's seat!

Chennai June 3 To old-timers, it used to be unthinkable that the venerable US dollar would ever see the blues. But that has been happening, for quite sometime now.

"There are academic debates, as to how long can the greenback can continue to be the most preferred choice as a reserve currency," observes Mr Robin Roy, Associate Director, PricewaterhouseCoopers, speaking to Business Line. There is talk about some of the currencies from the `mystical east' jostling for a position among the choice of reserve currencies, he wryly adds "rupee is in the driver's seat!"

Excerpts from an interview:

Currencies fluctuate and cash flows of companies need to be insulated against such events. How?

Enter the rupee derivatives. Currently, local regulations do not allow rupee-based currency contracts to be adopted. This typically would be expected, once capital account convertibility is a reality. It is only the banks and some selected participants in the local forex markets that offer NDF (non-deliverable forwards); in other words, there is no active market for hedging rupee denominated exposures, unlike as with dollars, where forward quotes are available to arrest the downside, against an upfront premium.

Why hedge rupee exposures?

With a substantial appreciation of the rupee against the dollar and corresponding appreciation against other major currencies, businesses need to seriously look at hedging the risks of exposures (payables) denominated in rupees.

At the same time, companies with major export receivables are seriously considering to invoice in rupees looking to its continuous appreciation (due to depreciation of the dollar and less notional income in rupees). Thus, they too would need to have a mechanism of hedging exposures in rupees.

After all, we contribute to less than 1 per cent of global trade and cannot expect the current "one way street" (rupee appreciation) to continue for too long.

On Dubai becoming the first exchange in the world to trade a rupee derivative

The recent launch of such derivatives by the DGCX (Dubai Gold and Commodity Exchange) in Dubai is a very interesting and timely move. Investors in the Gulf would be able to hedge their risks emanating from exposure in the rupee.

In tandem with more and more Indian businesses going global, such hedging products would be looked at with a lot of interest. The fact that the MCX (Multi Commodity Exchange) is a partner in DGCX makes it even more interesting.

With metals, commodities also looking at "price discovery" mechanisms there are serious attempts to try and help the more vulnerable in the value chain (farmers, small distributors etc.) mitigate risks resulting from an imperfect market, rupee derivatives have the potential to grow.