RBI to further internationalise Rupee and strengthen GIFT City
OVERVIEW:
The Reserve Bank of India (RBI) has laid out an extensive plan to internationalise the Indian rupee (INR) and enhance the role of GIFT City in Gujarat as a global financial hub.
These initiatives are designed to liberalise regulations for non-residents, facilitate bilateral trade in local currency, and create a more integrated and stable financial ecosystem.
BILATERAL TRADE SETTLEMENT IN LOCAL CURRENCY:
Promotion of Rupee for Trade: Encouraging the use of the Indian rupee for settling bilateral trade transactions with partner countries.
Special Rupee Vostro Accounts (SRVAs): Banks are permitted to open SRVAs for partner banks from other countries to facilitate export and import transactions in rupees.
FACILITATING INVESTMENTS:
Special Accounts for FDI and Portfolio Investments: Enabling foreign direct investment and portfolio investment through special non-resident rupee (SNRR) accounts and special rupee vostro accounts (SRVA).
REVIEW OF FEMA REGULATIONS:
Payment and Reporting Requirements: Rationalising payment modes and reporting requirements under FEMA Regulation 395.
Guarantees Regulations: Updating Foreign Exchange Management (Guarantees) Regulations, 2000, to address cross-border transaction issues.
OPEN RUPEE ACCOOUNTS OUTSIDE INDIA:
Non-Resident Accounts: Allowing persons resident outside India (PROIs) to open INR accounts abroad.
INR Lending by Indian Banks: Permitting Indian banks to lend in rupees to PROIs
PROMOTING RUPEE IN ASIAN CLEARING UNION (ACU):
ACU Mechanism: Promoting the use of INR and other domestic currencies within the ACU to facilitate regional trade
STRENGTHENING GIFT CITY:
FCY-INR Trading: The RBI plans to encourage the trading of foreign currency (FCY) and rupee (INR) pairs within GIFT City. This would create a robust foreign exchange market, attracting international investors and enhancing liquidity.
Fine-Tuning IFSC Regulations: A review of regulations governing International Financial Services Centres (IFSCs) under FEMA is underway. This aims to create a more conducive environment for international financial activities within GIFT City, making it a competitive global financial hub.
CONCLUSION:
The RBI’s strategic initiatives to internationalise the Indian rupee and enhance the role of GIFT City are aimed at reducing currency risk, increasing global economic integration, and bolstering India’s financial stability and bargaining power.
By facilitating cross-border transactions, attracting foreign investment, and establishing GIFT City as a financial powerhouse, the RBI is laying the groundwork for a more globalized Indian economy
