IMF sees internationalisation potential for Indian rupee
October 19th, 2011 - 10:40 pm ICT by IANSWashington, Oct 19 (IANS) The Indian rupee, the Brazilian real, the Chinese renminbi, the Russian ruble and the South African rand have been identified in an International Monetary Fund (IMF) discussion paper as the key emerging market (EM) currencies with potential for internationalisation.
All these economies have significant regional importance and economic weight, noted the IMF Staff Discussion Notes on “Internationalisation of Emerging Market Currencies: A Balance between Risks and Rewards” released here Wednesday.
Despite severe data limitations, there is evidence that the use of these EM currencies in international transactions has increased markedly in the past few years, the paper said noting that use in foreign exchange derivatives doubled for the rupee and the ruble and increased about twelve-fold for the renminbi and by 50 percent for the real.
Higher rates of growth in many emerging market countries relative to advanced economies, in particular over the last decade, has meant that emerging market countries now account for nearly half of global output, up from just over a quarter in 1971, it said.
While China’s regional importance has grown markedly in the last 10 years, India’s relative growth has been modest while Brazil has also experienced considerable growth in its role as a regional trading partner, the paper noted. South Africa’s regional share has declined and Russia’s regional share appears to have plateaued.
Having a large share of commodities in trade flows may present headwinds to currency internationalization in India, Brazil, and Russia, the paper said.
But China appears to be relatively less influenced by commodities trading, in contrast to some Advanced Market currencies, which are heavily influenced by commodity prices, it said.
According to a Capital account openness developed by IMF while Brazil and Russia have made significant progress toward liberalising their capital accounts, China, India, and South Africa still lag behind.
(Arun Kumar can be contacted at arun.kumar@ians.in)
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Tags: brazilian real, chinese renminbi, commodity prices, discussion paper, emerging market countries, exchange derivatives, global output, imf staff, indian rupee, international monetary fund, international monetary fund imf, international transactions, internationalization, last decade, regional importance, regional trading, relative growth, russian ruble, south african rand, trade flows