Definition
Currency Internationalisation
Currency internationalisation is the process of making a currency widely used for cross-border trade, investment and reserves; India is pursuing this for the rupee.
A fully internationalised currency is held abroad, used to invoice trade and accepted as a reserve asset, status the dollar enjoys. India is taking steps to internationalise the rupee, allowing rupee trade settlement with select partners and rupee accounts (Vostro accounts) for foreign banks.
Benefits include lower forex risk for Indian traders and reduced dollar dependence; challenges include the need for deeper markets and fuller capital-account convertibility. It is a gradual, strategic goal tied to India's rising global economic weight.
Related terms
- Non-Deliverable Forward (NDF)An NDF is a cash-settled offshore currency forward where no actual exchange of the underlying currency occurs, used to trade or hedge restricted currencies like the rupee.
- USDINRUSDINR is the exchange rate of the US dollar against the Indian rupee, the most-watched currency pair in India and a key barometer of capital flows and import costs.
- Capital Account ConvertibilityCapital account convertibility is the freedom to convert local financial assets into foreign assets and back at market rates without restriction, which India only allows partially.
- Reserve CurrencyA reserve currency is one that central banks hold in large quantities as foreign-exchange reserves and that dominates global trade and finance; the US dollar is the leading example.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.