April 10, 2023
Good morning. In today’s either/view, we discuss whether the Indian rupee could go global. We also look at the Telangana government’s decision to allow shops to run 24×7, among other news.
📰 FEATURE STORY
Will the Indian rupee go global soon?
An unexpected consequence of Russia’s war in Ukraine has been India’s growing inclination to strengthen the rupee for international trade. The United States-led sanctions on Russia have pushed nations like India and China away from trading in American dollars to attain Russia’s cheap oil. India’s new foreign trade policy, adopted on April 1 2023, emphasises the utilisation of the Indian rupee to settle international trade with nations facing a dollar shortage.
This way, the country can boost exports while promoting the rupee as a currency on par with the US dollar. Some experts are optimistic about the rupee’s future as a reserve currency in the international trade and investment market. But there are some impediments in its way that others find difficult to beat.
Context
A reserve currency is a large sum of money maintained by international financial institutions like the International Monetary Fund (IMF) or World Bank and the central banks of all countries to use in all international transactions. Currently, the world’s official currency reserve is the dollar. It became so in 1944 after delegates from 44 Allied countries signed the Bretton Woods agreement. Part of the dollar’s appeal, then, was that it was linked to gold.
But in 1971, when US President Richard Nixon delinked the dollar from gold, the value of the US dollar as a global reserve came to rely on its global demand and not on the US government’s assets. By the time Britney Spears’s Baby One More Time was released, around 90% of international trade was happening in dollars.
But in recent decades, things have started to change. You might have heard about de-dollarisation or the falling demand for the US dollar. When Russia annexed Crimea in 2014, and the US doubled up its sanctions on Russia and its trade in US dollars, countries began to think of alternatives. They wanted to avoid what happened to Moscow. China and Russia developed new payment gateways. Even the introduction of the Euro in 1999 helped chip away at the dollar’s dominance.
India and Russia’s bilateral agreement linked the Reserve Bank of India (RBI) and Russia’s Sistema Peredachi Finansovykh Soobscheniy (SPFS). In December 2022, India saw its first settlement of foreign trade in rupee with Russia. It was possible because of the RBI’s ‘International Settlement of Trade in Indian Rupee’ mechanism.
But this isn’t the first time the Indian rupee was used in international trade. Since before the Russia-Ukraine war, neighbouring nations like Maldives, Sri Lanka, and Bangladesh have sought ways to either trade in the Indian rupee or a standard South Asian currency.
In the 1960s, nations like Malaysia, Kuwait, Bahrain, Qatar, and the United Arab Emirates (UAE) used the Indian currency for trade, calling it the ‘Gulf rupee’.
So when we ask whether the Indian rupee will go global, you might think, hasn’t it already? But experts now aren’t talking about just one-off historical instances or bilateral agreements with neighbouring countries. Given the current global order, people are debating whether the demand for the Indian rupee can rise enough to match and eventually outpace it.
VIEW: It’s got potential
The Indian rupee has a little something for everybody. It benefits all parties involved, including India, thereby providing a strong pull for global demand. When businesses and governments trade in the US dollar, they first buy dollars in their country and subsequently convert some or all of it to the currency of their destination country. In such instances, countries like India and Sri Lanka can save approximately 50% in transaction costs if the medium of trade were rupees.
Trading in Indian rupees appeals to India’s neighbouring countries. It’s much easier and inexpensive to make payments in local currencies than routing them through a bank in the US. In a meeting with RBI Governor Shaktikanta Das, Sri Lankan High Commissioner Milinda Moragoda spoke about using the Indian rupee in bilateral trade. There are also talks with the UAE for a rupee-dirham agreement.
The RBI appears optimistic too. It’s allowed for the opening of Special Rupee Vostro Accounts (SRVAs) of correspondent banks from 18 countries, including Germany, Israel, Kenya, Malaysia, Myanmar, New Zealand, Russia, Singapore, Sri Lanka, and the United Kingdom. It will help to raise the volume of transactions made in the Indian rupee.
COUNTERVIEW: A Sisyphean task
There are many lessons to be learnt from the past. In the 1950s, when India and Russia entered into a rupee-rouble agreement, Moscow’s interests ended up reducing as it couldn’t reciprocate New Delhi’s expensive imports from the country. Another roadblock is that India doesn’t allow full capital account convertibility. Put simply, the Indian rupee cannot be traded beyond a specific volume with other currencies without the RBI’s approval.
Even the RBI’s push to internationalise the rupee in various countries has recorded a dismal performance until now. There have been very few transactions in the SRVAs. According to some sources, India is buying Russian oil in dollars because the rupee still doesn’t have enough trust and acceptance to invoice international trade. It represents only 1.6% of the daily average global commerce.
Neighbouring countries and the rest of the world will watch India’s economic policies and the ability of the rupee to withstand global shocks to be able to trust the currency. While India’s global trade volume has swelled, the increase is largely due to higher imports. Foreign direct investment (FDI) and other private capital investment levels in India have been tepid since the Covid-19 pandemic. If the rupee really has to go global, addressing this gap could enormously benefit its credibility.
Reference Links:
- India’s new trade policy aims to promote rupee trade – Reuters
- Rupee going global: Acceptable for South Asia? – ORF
- De-dollarization: World faces threat of economic catastrophe – The Sunday Guardian
- Bilateral trade in rupee to gather pace soon – Financial Express
- Rupee far from being a global currency – The New Indian Express
- Amidst De-Dollarisation, Is There a Global Opportunity for Indian Rupee To Rise? – The Quint
What is your opinion on this?
(Only subscribers can participate in polls)
a) The Indian rupee will go global soon.
b) The Indian rupee won’t go global anytime soon.
🕵️ BEYOND ECHO CHAMBERS
For the Right:
Dear retired judges, disagree as you may, but gay marriages do not invite your HIV phobia
For the Left:
How Anti-Hindu Coalitions Falsely Implicate Sangh in Gandhi’s Assassination
🇮🇳 STATE OF THE STATES
New school blocks to resemble Columbia University (New Delhi) – Chief Minister Arvind Kejriwal, while laying the foundation stone for new building blocks at Rajkiya Sarvodaya Kanya/Bal Vidyalaya in East Vinod Nagar, stated that the future school’s quality would be equivalent to Columbia University. The project, according to Kejriwal, was developed by his former deputy Manish Sisodia and would feature 93 rooms, 71 of which will be utilised for courses and the remaining 22 for labs, libraries, activity spaces, staff rooms, and the principal’s office. With 5,000 pupils, the school presently operates in two shifts.
Why it matters: Students presently enrolled at the school, according to the CM, can study four international languages: French, German, Spanish, and Japanese, which are not taught at many private schools in Delhi. Kejriwal referred to Sisodia as the architect of the “education revolution” in Delhi, saying his achievements had such an impact throughout the country that he was imprisoned because his political opponents in power couldn’t stomach it. Sisodia was sent to prison for being the prime accused of the Delhi liquor excise scam.
Shops in Telangana to now operate 24×7 (Telangana) – The Bharat Rashtra Samithi (BRS) government approved legislation on Friday enabling all stores and enterprises, including malls and restaurants, to remain open 24 hours a day, seven days a week, subject to specific conditions. The labour department’s ruling exempted all shops and establishments in the state from Section 7 (opening and closing hours) of the Telangana Shops And Establishments Act 1988.
Why it matters: The state, however, demands businesses to follow certain guidelines as well. Companies must provide their employees with identification cards, weekly leaves, fixed weekly shift times, overtime pay where necessary and compensatory holidays with pay in lieu of staff attending duty on a notified national festival or holiday. Care must be taken while employing female staff for night shifts, and their safety must be ensured. This change not only benefits retail establishments but also assists customers who happen to run into an emergency after closing hours or who want to enjoy the state’s nightlife.
Kurmis bring railways in Bengal to a standstill (West Bengal) – Numerous members of the Kurmi tribal community from West Bengal, Jharkhand, and Odisha have staged protests in West Bengal’s Paschim Medinipur and Purulia districts, causing road and railway services to come to a standstill in portions of the state. At least 496 trains have been cancelled on critical state lines since April 5. While protests at the Kustaur and Khemsauli stations continue, Kurmi factions have organised another agitation at the Kotshila station in Purulia.
Why it matters: A representative of the Kurmis said that they have three demands. The first is to be reincluded in the list of scheduled tribes. The second demand is for active efforts by the Government of India to safeguard the language and culture of the Kurmis. The final demand is that their language be included in the eighth schedule of the constitution. The Indian Railways are in peril because of the protest, and they are trying their best to aid the affected passengers by rerouting their trains.
Rapper booked for attacking politicians via song (Maharashtra) – Last Monday, Mumbai police filed an FIR against a rapper and summoned him for questioning in connection with a song that reportedly “targeted political leaders.” This is the second case in just one week in which law enforcement has arrested a rapper, the first being a similar case filed by Ambernath police against another individual. According to an official, the Wadala TT police arrested rapper Umesh Khade, who goes by the moniker ‘Shambho,’.
Why it matters: The Crime Intelligence Unit (CIU) of Mumbai Police filed the FIR after Khade’s song ‘Janta bhongli keli (You made citizens nude)’ went popular on social media. Khade was interrogated at the station and later released on an agreement that he would cooperate with the police investigation if summoned. Khade informed the cops that he didn’t identify anyone in the song and that it was just about the hardship of the common man. NCP MLA Jitendra Awhad said that the arrest was absurd. Shambho had not named anyone in the song. If the police would arrest people for just expressing their troubles, then every person would end up in jail.
Assam eyes world record via largest Bihu showdown (Assam) – The Bihu naas is a distinguishing characteristic of Rongali Bihu, or Bohag Bihu, which marks the beginning of the Assamese new year. The Assam administration has prepared a spectacle around the folk dance on April 14, the start of the festival. A total of 11,140 artists from all districts of the state will perform together at Guwahati’s Sarusajai Stadium in the presence of Prime Minister Narendra Modi. The goal, according to CM Himanta Biswa Sarma, is to organise the largest Bihu dance performance at a single venue and make it into the Guinness Book of World Records in the folk-dance category.
Why it matters: The performance will last around 15 minutes. 70% of the performances would be women and would comprise singers and players of traditional instruments like dhol, taal, gogona, toka, pepa, and xutuli. The majority of the artists will arrive in Guwahati on the night of April 10, and the performance will be practised from the 11th to the 13th. Participants enrolled online by submitting videos and experience certificates to the state government. This event will not just register Assam in the Guinness Book of World Records but will also showcase the richness of its culture at a grand level.
🔢 KEY NUMBER
14 crore – A ₹14-crore sea wall project along Nagapattinam’s coastline is being built to combat coastal erosion.