In a big boost for China’s currency, the International Monetary Fund (IMF) has given yuan the prized reserve asset status, a move that may make the yuan become as recognizable as the dollar or euro.
Replying to a question on internationalisation of the Indian rupee in the wake of IMF’s move, Reserve Bank of India Governor Raghuram Rajan on Tuesday said that the Indian financial system is actually ahead of China in some dimensions.
Speaking at a media briefing after the Indian central bank kept rates unchanged, the RBI chief said, “On some dimensions, we (India) are ahead of China, in terms of degree of competitiveness within the banking systems. (In) Some of the markets we have taken some steps which put us ahead.”
Dr Rajan however noted that “in terms of the size of the economy, in terms of extent of external trade, in terms of denominating trade in renminbi (yuan) they (China) are much ahead of us.”
China is the second-biggest economy after the United States. And the yuan is the No. 4 currency in the world in terms of total global trade, according to SWIFT, the organization for interbank financial transfers.
Dr Rajan said that internationalisation of the rupee is a process and the RBI is taking steps to make India a much more open economy.
The RBI chief cited the recent steps taken by the central bank that will help in further internationalisation of the rupee. The RBI recently allowed Indian corporates to raise funds from overseas market through masala bonds – rupee denominated overseas bonds – a move seen as a small step towards full rupee convertibility.
Rating agency S&P expects Indian companies to raise up to $5 billion over the next three years through masala bonds.
The RBI chief also cited the increase in investment limit for foreign investors in government bonds. The increase, to be carried out in stages until March 2018, will translate into over Rs 1 lakh crore of inflows into Indian debt markets.