Hard Currency

GS Paper III Indian Economy

Context:

GTRI suggests India should focus on becoming a middle-income country before aspiring to make the INR (rupee) a hard currency.

Wait for Middle-Income Status: The think tank recommends that India waits until its economy grows further and attains middle-income status before pursuing the goal of making the INR a hard currency.
Strengthen Local Currency Settlements: Focus on making local currency settlements more robust to enhance economic stability.
Enhance Currency Convertibility: Acknowledge the importance of making the rupee fully convertible on the capital account, a key trait of hard currencies.
- India operates a partially convertible capital account, which entails that the INR can be swapped for foreign currencies and vice-versa for limited reasons.

About Global Trade Research Initiative (GTRI):

GTRI aims to create high-quality and jargon-free outputs for Governments and Industry on issues related to trade, technology, and investment from the perspective of development and inequality reduction.

Hard currency refers to money that is issued by a nation that is seen as politically and economically stable.
Hard currencies are widely accepted around the world as a form of payment for goods and services and may be preferred over the domestic currency.
- The problem of international liquidity is related to the non-availability of Dollar and other Hard Currency.
Key Factors for Hard Currency Status:
- Economic stability, low inflation, consistent growth, and a balanced trade environment are pivotal factors.
- Strong fiscal and monetary policies, political stability, and effective national debt management are crucial for aspiring reserve currency status.
Some of the most recognised hard currencies and their approximate global share:
- US Dollar (60 percent), Euro (20 percent), Japanese Yen (5-6 percent), British Pound Sterling (4-5per cent), Swiss Franc (1 percent), Canadian Dollar (2-3 percent) and Australian Dollar (2-3 percent).