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What does "Rupee internationalisation" imply?
Global economy is witnessing a turmoil owing to the Covid-19 induced pandemic and the subsequent invasion of Ukraine by Russia. Countries have seen historic inflation, which has put pressure on domestic currency of countries. India has also been facing the same conditions.
Reasons for decline of rupee
- Increase in crude prices
The crude oil prices are increasing due to high demand. The payments of are made in dollars and thus the demand for dollars grow. This causes domestic currency to witness a fall. - Increase in US Fed rates
The US Fed has raised interest rate on various government Security bonds. Investors across the world are buying dollars in order to invest into securities. This has caused prices of domestic currency to crash.
Revival of rupee through internationalisation
- Buying rupee
As more and more financial transactions take place in Indian rupees, the demand for the currency grows. As demand grows internationally, the currency appreciates. - Trading in rupees
As transactions take place in domestic currency like rupee, the RBI doesn’t spend hard foreign reserves. As foreign currency outflow decreases, rupee stabilizes due to decrease in downward pressure.
Thus, the decline in rupee is due to a combination of factors, majority of them beyond India’s control. Still, there are ways in which the burden on economy can be reduced.
POSTED ON 10-07-2022 BY ADMIN
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