Context:

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

Suggestions for INR Development

• 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.

What is Hard Currency?

• 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).

News Source: Financial Express