Internationalisation of the Rupee

The Indian Rupee currently accounts for approximately 1 percent of global foreign exchange turnover. It has a smaller market size across most trading instruments when compared to the top 8 emerging market currencies. In this paper, we evaluate the current status of the Indian Rupee as an international currency using the Chinn and Frankel (2008) framework, and explore the possibility of future Indian Rupee internationalisation. We find that the Indian Rupee has a negligible role as an official sector currency. It has some use as a reserve currency in its economic sphere of influence, but no role as an anchor or intervention currency. Private actor adoption of the Indian Rupee is much larger and more diverse than the official sector. However, this role is mostly restricted to financial flows and portfolio investment. In terms of trade invoicing and settlements in the private sector, the Indian Rupee plays a limited role due to concerns of convertibility and risk management. Given the current path of exchange control and capital account liberalisation, we anticipate gradual internationalisation of the Indian Rupee due to regional competition from the Renminbi.

Response to “A Cost-Benefit Analysis of UID”

With Sumathi Chandrashekaran, Smriti Parsheera, Ila Patnaik, Madhavi Pundit, Suyash Rai, and Ajay Shah 

A debate on the study “A Cost-Benefit Analysis of Aadhaar” conducted by the National Institute of Public Finance and Policy which was discussed in the EPW of 2 February 2013.

A Cost-Benefit Analysis of UID

This study estimates the costs and benefits of Aadhaar. We find that substantial benefits would accrue to the government by integrating Aadhaar with schemes such as pds, mnregs, fertiliser and lpg subsidies, as well as housing, education and health programmes. The benefits arise from the reduction in leakages that occur due to identification and authentication issues. Our analysis takes into account the costs of developing and maintaining Aadhaar, and of integrating Aadhaar with the schemes over the next ten years. Even after taking all costs into account, and making modest assumptions about leakages, of about 7-12 percent of the value of the transfer/subsidy, we find that the Aadhaar project would yield an internal rate of return in real terms of 52.85 percent to the government.

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