In this episode of the State of the Economy podcast, Madan Sabnavis, Chief Economist, Bank of Baroda, explains the concept of internationalising the Indian rupee, aiming for its acceptance as a hard currency globally. Internationalisation means that the rupee could become widely acceptable for trade and payments across countries, similar to major currencies like the US dollar or Euro. This move would benefit India, particularly as it faces trade deficits and requires foreign exchange to support imports. By using the rupee for international transactions, India could save foreign exchange reserves and reduce exchange rate pressures.
However, achieving global acceptance for the rupee requires credibility and economic stability. Credit rating plays a significant role in determining a currency’s acceptance as an international currency. While India has been signing agreements with trading partners to settle trades in local currencies, practical challenges remain. For this approach to work, like-minded countries with balanced trade relations need to come together.
Regarding the future of the dollar as the dominant global currency, there is growing discussion about de-dollarisation due to concerns about its stability. However, the dollar is expected to remain strong for the next decade or more, and alternative currencies, like the Chinese Yuan, are yet to gain widespread acceptance.
In conclusion, internationalising the rupee is a beneficial goal for India, but it requires overcoming practical challenges and building credibility in the global economy. While the dollar’s position may face some scrutiny, it is expected to remain the leading global currency for the foreseeable future.
(Host: Lokeshwarri S K, Producer: Jayapriyanka J)
About the State of the Economy podcast
India’s economy has been hailed as a bright spot amid the general gloom that seems to have enveloped the rest of the world. But several sectors continue to stutter even as others seem set to fire on all cylinders. To help you make sense of the bundle of contradictions that the country is, businessline brings you podcasts with experts ranging from finance and marketing to technology and start-ups.