Deep N Mukherjee , is currently Director, Corporate Ratings with India Ratings & Research (Previously called Fitch Ratings India). He heads corporate ratings for Western India. He has over 11 years of experience in Risk Management and Credit Assessment. Prior to his current role, within Fitch he was in structured finance team. Prior to his organization he was with American Express where he was heading the Institutional Risk Management Team focusing on quantitative risk management. He is also a visiting faculty in finance with IIM Calcutta. He has done his graduation in engineering from IIT, Kharagpur (BTech, 1999) and has obtained his management degree from IIM Lucknow (PGDM 2002).

Introduction

Lot of countries including the prominent emerging nations such as China and India has aspirations of ‘internationalizing’ their currency. While in general there is a broad consensus on what an ‘internationalized’ currency may look like still no precisely defined framework exists. Of course, all internationalized currency has aspirations of entering into that ‘Hall of Fame” which is IMF’s Special Drawing Rights (SDR) basket. Currently there are four currencies in the SDR basket (USD, Euro, Pound and Yen) and going by IMF’s latest press release Chinese Renminbi may become the fifth currency in the SDR basket.

However, during the process of currency internationalization the country may benefit from the journey itself. In order to internationalize its currency a country needs to take several measures and show palpable results of the same. The global market participants starts acknowledging those developments by showing lesser resistance to accept its currency as payments or subscribing to securities denominated in that currency. As transaction volumes increase the cost of transacting in the currency reduces and over decades the currency assumes international stature.

The benefits of the process of internationalization often tend to outweigh the constraints of owning an internationalized currency. Thus countries having highly internationalized currencies tend to have more stable domestic economies to the extent the foreign currency (FX) risk is mostly mitigated. For India, whose economy has a high exposure to foreign currency risk, it may be beneficial to have a more internationalized Rupee. Of course more systematic and well-coordinated planning and efforts are required so that hopefully over next two decades Indian rupee becomes more internationalized comparable to at least countries such as Mexico and China… to read full article courtesy by ( http://financelab.iimcal.ac.in/artha/index2.php ) click here