The increasing use of the Indian rupee in invoicing and settlement of international trade, as well as in capital account transactions, will give the local currency international acceptance, a working group of the Reserve Bank of India said.

An international currency is one that is freely available to non-residents, essentially to settle cross-border transactions, and in the case of the rupee, this will be achieved by promoting the currency for import and export, without any limits.

“The internationalisation of a currency is also closely interlinked with the nation’s economic progress, especially its prominence in global trade,” the working group said in the report, which was made public on the RBI’s website on Wednesday (Jul 5).

“The measures for promoting internationalisation of INR (Indian rupee) would involve steps towards parallelly liberalising the capital account, promoting international usage of INR, and strengthening financial markets.”

The group recommended enabling the rupee as an additional settlement currency in multilateral mechanisms such as the Asian Clearing Union.

It also encouraged the opening of rupee accounts for non-residents both in India and outside the country, and integrating the Indian payment systems with other countries for cross-border transactions.

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Further, the report also proposed the country’s financial markets to be strengthened by fostering a five-day round-the-clock global rupee market while promoting India as the hub for rupee transactions and price discovery and inclusion of local government debt on global bond indexes.

Besides, exporters should be offered “equitable” incentives for settling trades in rupees, it added.

Over the medium term, the group recommended a review of taxes on masala bonds, or those bonds issued outside India but denominated in rupees.

It also recommended examining tax issues in financial markets and allowing banking services in rupees outside India through offshore branches of Indian banks.

The RBI said that the report and its recommendations do not reflect its official position and that the proposals will be examined for implementation. REUTERS