India Must Prepare To Manage Volatility Risks In Forex Market, Says RBI Deputy Governor

The deputy governor said that India has increasingly aimed to promote trade denominated in Rupees

learn more about Teena Jose

By Teena Jose


Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

The deputy governor of the Reserve Bank of India (RBI), M Rajeswar Rao has said that India needs to gear up to manage the inevitable volatility that will emerge in the foreign exchange market as the country progresses further towards internationalisation of the rupee. The RBI published a copy of the speech on its website on Thursday.

"Further dynamics are likely to emerge as we progress down the path of internationalisation of the Rupee. It is now widely accepted that while internationalisation and a freer capital account comes with its own set of benefits, it is not without risks and that freer capital flows come with their own set of challenges, the primary one being that of volatility and we need to gear up to manage that. We are seeing a good amount of interest in the Rupee trading arrangements that we have been endeavouring to put in place. If our efforts towards Rupee invoicing bear fruit, domestic exporters and importers will not need to hedge, but there will be other opportunities in the form of their non-resident counterparts who may need to hedge," said Rao in a statement.

However, the deputy governor did not expand on how to manage the volatility in his comments, which were part of his keynote address at a conference organised by the Foreign Exchange Dealers' Association of India (FEDAI) on Sunday.

An international currency is one that is freely available to non-residents, essentially to settle cross-border transactions, and in the case of the rupee, this will be achieved by promoting the currency for import and export, without any limits.

"India is today considered as one of the fastest growing economies of the world with clear emphasis on strong macroeconomic fundamentals and is recognised as one of the few bright spots amidst current challenges and uncertainties. Concomitantly, the financial sector has expanded both in terms of depth and diversity with differentiated niche banks catering to the differing needs of the economy and society," said Rao.

The deputy governor said that India has increasingly aimed to promote trade denominated in rupees. Last July, the RBI introduced a new mechanism to settle international trade in rupees, aiming to promote exports and facilitate imports. In his words, "There was a "good amount of interest" in the rupee trading arrangements the RBI was putting in place. And if the central bank's efforts towards rupee-invoicing bear fruit, local exporters and importers will not need to hedge."

"In a constantly evolving world where change is the only constant, the journey of the Indian foreign exchange market over the last few decades has been one of continuous development and innovation. The Reserve Bank remains committed to continuously move ahead at a steady pace in line with the changing macro-financial environment - globally and domestically," Rao further noted.

Teena Jose

News Desk Reporter with Entrepreneur India

Teena is a post graduate in financial journalism. She has an avid interest in content creation, digital media and fashion.

Related Topics

News and Trends

Scam 2023: Inside The World Startup Convention Disaster

To many, the speaker line up for the World Startup Convention (WSC) which had been scheduled for March 24-26, 2023 at Greater Noida may have seemed too good to be true.

News and Trends

Why Government May Ban Related Party Sales Of E-commerce, Food Delivery Startups

"E-commerce companies are permitted to merely operate a pure-play marketplace i.e. a bridge between the buyer and seller and not sell any goods, even their own products on their platforms," said Praveen Khandelwal, secretary general, CAlT

Starting a Business

90% of Online Businesses Fail in Just 4 Months. You Can Avoid the Same Fate By Using These Strategies.

It's not catastrophizing when we think about potential failure; it's in fact a chance for any business to precisely see any outcome and prepare in advance.


5 Insider Tips for Improving Your Confidence as a Public Speaker

Presenting publicly can be a nerve-wracking experience. Here are five key tips to help you boost your confidence.


5 Steps to Communicate Like a Boss

Here are five tips leaders can use to improve their communication skills.


Up, Up And Away: Inside India's First Private Space-Tech Company

In the beginning, investors did not believe that a 24-year-old could form a space company in India.