Former RBI Governor Duvvuri Subbarao has expressed his views on the internationalization of the Indian rupee, highlighting the challenges and opportunities associated with reducing dependency on the US dollar. Here’s a detailed overview of his remarks:
1. **Dependency on the Dollar**:
– Subbarao emphasized that the international financial system is heavily reliant on the US dollar, stating, “Today, we are all hostage to the dollar.”
– Despite recent efforts such as India’s deal with Russia for discounted oil, he noted that challenging the dollar’s dominance has been difficult.
2. **Resentment Against the Dollar**:
– Subbarao acknowledged a growing resentment against the dollar, attributing it to America’s tendency to weaponize its currency.
– He highlighted the vulnerability of the global economy to volatility due to the dollar’s dominant position, noting that the US enjoys “exorbitant privilege” as the world’s reserve currency.
3. **Efforts for Rupee Internationalization**:
– Subbarao revealed that he had urged the RBI to advance the internationalization of the rupee during his tenure as governor.
– He suggested that India needs a more balanced and broader trade footprint to reduce dependency on other currencies.
4. **Prime Minister’s Advice**:
– Subbarao referenced Prime Minister Narendra Modi’s advice to the RBI during its 90th-anniversary event, encouraging the central bank to make the rupee more globally acceptable.
5. **Policy Recommendations**:
– Subbarao emphasized the need for the RBI to adopt a less interventionist approach in the foreign exchange market to facilitate rupee internationalization.
– He suggested removing capital controls and adopting a more hands-off approach by the central bank.
6. **Benefits of Rupee Internationalization**:
– Increasing the use of the rupee in international transactions offers several benefits for India.
– It helps mitigate exchange rate risks for Indian exporters and importers, reduces reliance on the dollar, and decreases the need for maintaining large foreign exchange reserves to manage external vulnerabilities.
