{"id":32751,"date":"2018-10-29T16:17:29","date_gmt":"2018-10-29T10:47:29","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=32751"},"modified":"2018-10-29T16:17:29","modified_gmt":"2018-10-29T10:47:29","slug":"avoiding-the-currency-basket-case","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/avoiding-the-currency-basket-case\/","title":{"rendered":"Avoiding the currency basket case\u00a0"},"content":{"rendered":"<p><a href=\"https:\/\/www.thehindu.com\/opinion\/op-ed\/avoiding-the-currency-basket-case\/article25138021.ece\" target=\"_blank\" rel=\"noopener\"><strong><u>Avoiding the currency basket case\u00a0<\/u><\/strong><\/a><\/p>\n<p><strong>Article<\/strong><\/p>\n<p>The article elaborates on the evolution of Indian rupee and how internationalization of the rupee will benefit the Indian currency.<\/p>\n<p><strong>Important Analysis:<\/strong><\/p>\n<ul>\n<li>The Indian rupee was once a multi-lateral currency as its usage prevalent across the Indian ocean in Java, Borneo, Macau, Muscat, Basra and Zanzibar.<\/li>\n<li>The Gulf had a familiarity with the rupee for five centuries.<\/li>\n<\/ul>\n<p><strong>Genesis of Indian rupee<\/strong><\/p>\n<ul>\n<li>The issuance of new rupee coin dates back to accession of George V to the British throne in 1911.<\/li>\n<li>The annexation of Sindh, Ceylon and Burma further intensified the presence of rupee in the region.<\/li>\n<li>Gulf states were using RBI-minted Gulf rupees until 1966.<\/li>\n<\/ul>\n<p><strong>Transition line<\/strong><\/p>\n<ul>\n<li>These countries switched to their own currency after the devaluation of Indian rupee in 1966 after 1965 war.<\/li>\n<li>Presently, only Bhutan and Nepal conduct bilateral trade with India in rupees.<\/li>\n<li>Rupee value to dollar has been devaluated from Rs. 3.30 in 1947 to Rs. 7.50 in 1966 to Rs. 32.4 in 1995.<\/li>\n<\/ul>\n<p><strong>Factors behind devaluation of the rupee<\/strong><\/p>\n<ul>\n<li>Wars with Pakistan and China<\/li>\n<li>Adoption of five year plans requiring foreign loans<\/li>\n<li>political instability<\/li>\n<li>oil price shock of 1973<\/li>\n<\/ul>\n<p><strong>Factors behind recent fall in rupee value<\/strong><\/p>\n<ul>\n<li>FII outflows from stocks and bonds<\/li>\n<li>The ongoing US-China trade war<\/li>\n<li>Iran sanctions<\/li>\n<li>Further upward trend in oil prices<\/li>\n<\/ul>\n<p><strong>Options available for stabilization of rupee<\/strong><\/p>\n<ul>\n<li>Intervening in the forex market by selling dollars from the RBI reserves.<\/li>\n<li>Selling non-resident Indian bonds to raise money.<\/li>\n<li>Issuance of sovereign bond to raise to debt in rupee form.<\/li>\n<\/ul>\n<p><strong>What needs to be done to bring rupee in the top 10 traded currencies:<\/strong><\/p>\n<ul>\n<li><strong>Rupee payment mechanism<\/strong>&#8211; India should consider formalizing the rupee payment mechanism with friendly countries like Russia. For example: rupee swap arrangement between India- Iran, rupee-rouble trade arrangement between India and Russia.<\/li>\n<li><strong>Industrial growth<\/strong>&#8211; These arrangements will work well when we have robust industrial growth.<\/li>\n<li>A lower rupee can further increase import burden of the country.<\/li>\n<li><strong>Formalization of the economy<\/strong>&#8211; The formalization of Indian economy is also needed.<\/li>\n<li><strong>Tax rate rationalization<\/strong>&#8211; Tax rate rationalization with lower tax rate to increase the tax base and increase compliance with tax returns.<\/li>\n<\/ul>\n<p>China campaigned hard for the inclusion of its currency in the IMF\u2019s benchmark currency to make yuan \u201cfreely usable\u201d.<\/p>\n<p>RBI on the other hand has followed a cautious approach to convert rupee from a largely non-convertible\u00a0 pegged currency before 1991 to a managed float by taking measures like<\/p>\n<ul>\n<li>Allowing companies to raise debt offshore<\/li>\n<li>Creation of masala bonds<\/li>\n<li>Allowing foreigners to invest in rupee debt onshore<\/li>\n<\/ul>\n<p>Institutional resistance against rupee convertibility should be reversed.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Avoiding the currency basket case\u00a0 Article The article elaborates on the evolution of Indian rupee and how internationalization of the rupee will benefit the Indian currency. Important Analysis: The Indian rupee was once a multi-lateral currency as its usage prevalent across the Indian ocean in Java, Borneo, Macau, Muscat, Basra and Zanzibar. The Gulf had&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/avoiding-the-currency-basket-case\/\">Continue reading <span class=\"screen-reader-text\">Avoiding the currency basket case\u00a0<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-32751","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704956255},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/32751","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\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=32751"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/32751\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=32751"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=32751"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=32751"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}