One of the primary reasons hindering the global acceptance of the Indian rupee is its limited convertibility. Strict foreign exchange controls and capital account restrictions imposed by the Indian government have deterred international investors and central banks from fully embracing the rupee. These measures aim to maintain stability and protect the Indian economy, but they also impede the currency’s integration into global financial markets.
Source TOI
Moreover, the lack of deep and liquid financial markets in India adds to the challenges. To become a global currency, the rupee needs to have robust markets for trading and hedging, as well as a wide range of financial instruments denominated in the currency. Although significant progress has been made in recent years, the Indian financial markets still have some way to go to match the depth and sophistication of established global markets.
Another factor is the prevalence of other major global currencies, such as the US dollar, the euro, and the Japanese yen. These currencies have long-standing dominance in international trade and finance, making it difficult for the Indian rupee to break into the exclusive club of reserve currencies. The trust and stability associated with these established currencies present a formidable barrier for the rupee to overcome.
However, efforts are being made to enhance the international standing of the Indian rupee. The Reserve Bank of India (RBI) has taken steps to gradually liberalize capital controls, allowing for greater foreign participation in Indian markets. Additionally, the Indian government has been actively promoting economic reforms and pursuing policies to attract foreign investment, which can help bolster the rupee’s international recognition.
Source: Abhi and Niyu
While the Indian rupee’s journey toward becoming a global currency faces hurdles, India’s growing economic prowess and ongoing reforms provide a solid foundation for future progress. Continued efforts to improve financial market infrastructure, enhance convertibility, and build investor confidence will be crucial in elevating the rupee’s status on the global stage.
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