Standard Chartered chairman Sir John Peace favours internationalisation of rupee

Standard Chartered Chairman Sir John Peace on Monday advocated for internationalisation of the rupee amid companies in India planning to issue masala (rupee-denominated) bonds worth £600 million pounds (Rs 5,000 crore) in London in the next three months. 

“It’s very important that in the global economy now, Indian currency also has the ability to support Indian companies going out and also for trade coming into India. Internationalisation of the rupee is very important,” Peace told Business Standard on the sidelines of India-UK CEO Forum, part of the India-UK Tech Summit here on Monday. 

His comments came at a time when masala bond has come up as an instruments to attract international investment. These bonds ensure the exchange rate risk from overseas borrowing is borne by investors rather than issuers. 

Four masala bonds worth £600 million (Rs 5,000 crore) are expected to be listed in London in the next three months, the British government said on Monday, as Prime Minister Theresa May began a two-day visit to India. 

“This government will continue to work closely with both India and our financial services sector to ensure our growing rupee bond market continues to help finance India’s ambitious infrastructure investment plans,” May said in a statement. 

The new bonds will be issued by the government-backed companies –Indian Railway Finance Corporation, National Agri Authority of India, Energy Efficiency Services, and Indian Renewable Energy Development Agency.

In November 2015, the International Finance Corporation sold its first rupee-denominated bonds in London to attract international investment in India’s infrastructure. The landmark issue of 10-year masala bonds represented one of India’s first steps to promote the internationalisation of the rupee. 

Later, Housing Development Finance Corporation and NTPC also issued masala bonds. 

The Indian rupee is seldom used for invoicing international trade.

Earlier this year, the government had told Parliament that internationalisation of the rupee would facilitate greater degree of integration of Indian economy with the rest of the world in terms of foreign trade and international capital flows. 

Key benefits of internationalisation of the rupee include savings on foreign exchange transactions for Indian residents, reduced foreign exchange exposure for Indian companies, reduction in dependence on foreign exchange reserves for balance of payment stability, etc. 

One of the important drivers for internationalisation of a currency is the country’s share in global merchandise and commercial services trade. India’s percentage share in the global trade is still on the lower side and it limits the pricing ability of domestic businesses in the rupee. 

Moreover, the share of the rupee in the global foreign exchange market turnover at present is also very low. 

Internationalisation of the Indian currency would also require full capital account convertibility. As a policy, India has followed a gradual and cautious approach in opening up the capital account.