{"id":195564,"date":"2022-07-14T17:23:53","date_gmt":"2022-07-14T11:53:53","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=195564"},"modified":"2022-07-14T17:23:53","modified_gmt":"2022-07-14T11:53:53","slug":"rupee-convertibility-is-due-for-a-crypto-rethink","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/rupee-convertibility-is-due-for-a-crypto-rethink\/","title":{"rendered":"Rupee convertibility is due for a crypto rethink"},"content":{"rendered":"\n

Source<\/strong>: This post is based on the article \u201cRupee convertibility is due for a crypto rethink<\/strong>\u201d published in Livemint<\/strong> on 14th Jul 22<\/strong>.<\/p>\n

Syllabus<\/strong>: GS3 – Economy<\/p>\n

Relevance<\/strong>: Monetary policy and related issues<\/p>\n

News<\/strong>: As crypto can weaken state control of capital flows, India\u2019s policy of global integration must remain adaptable. We should not let price instability cramp our options on the external front.<\/p>\n

Why price stability is significant?<\/h5>\n

Overall, it helps keep an economy steady on almost every front.<\/p>\n

It would also set a key part of the stage for full capital convertibility<\/span>.<\/a><\/strong><\/p>\n

–<\/strong> It is a market- oriented idea that was left to gather dust after the Asian Crisis of 1997. Open economies bloated by foreign debt saw a reversal of global balances and were thrown into chaos as capital fled amid a currency crash.<\/p>\n

–<\/strong> India has kept some limits in place on inflows and outflows ever since, exposing only parts of India\u2019s financial sector to external risk, equity markets far more than debt.<\/p>\n

Note: <\/strong> In India, the RBI is entrusted with the responsibility of conducting monetary policy with the primary objective of maintaining price stability while keeping in mind the objective of growth.<\/p>\n

What are the price stability settings for India to switch to full capital account convertibility?<\/h5>\n

These were set out back in June 1997 by the report of a panel on \u201ccapital account convertibility” headed by the late central banker S.S. Tarapore<\/strong>.<\/p>\n

The report advocated a gradual shift<\/strong> enabled strictly by<\/p>\n

–<\/strong> a fiscal deficit kept under 3.5% of GDP<\/p>\n

–<\/strong> inflation capped at an average 3-5% by means of a central bank mandate<\/p>\n

–<\/strong> the bad assets of lenders\u2014with lending rates fully freed\u2014no higher than 5% of their total.<\/p>\n

Further easing of capital controls was to be calibrated by a)<\/strong> the rupee\u2019s trade-weighted rate of exchange, b)<\/strong> India’s balance of payments and c)<\/strong> adequacy of hard reserves (for which it proposed net foreign assets at 40% of currency).<\/p>\n

Other criteria<\/strong><\/span><\/p>\n

d)<\/strong> Receipts from abroad had to stay on an uptrend, e)<\/strong> external debt service burden suitably low and f)<\/strong> trade gap kept consistent with these.<\/p>\n

As of now, India is in no position to turn rupee fully convertible.<\/p>\n

Way forward<\/h5>\n

Yet, India must work towards some abovementioned base conditions to widen its policy options in today\u2019s uncertain times.<\/p>\n

To ward off the capital-flight risk, India needs to achieve macro stability. It should reduce every incentive for money to be swiped into a digital store-of-value (Crypto) that\u2019s globally accessible with such ease.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: This post is based on the article \u201cRupee convertibility is due for a crypto rethink\u201d published in Livemint on 14th Jul 22. Syllabus: GS3 – Economy Relevance: Monetary policy and related issues News: As crypto can weaken state control of capital flows, India\u2019s policy of global integration must remain adaptable. We should not let… Continue reading Rupee convertibility is due for a crypto rethink<\/span><\/a><\/p>\n","protected":false},"author":10328,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10501],"class_list":["post-195564","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-live-mint","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704915190},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/195564","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10328"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=195564"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/195564\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=195564"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=195564"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=195564"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}