The official currency of India is called the Indian Rupee (INR). It is the world’s 20th most traded currency with nearly 24 Trillion Rupees in circulation. As an average estimate, INR’s daily turnover stands around 53 Billion U.S. Dollars.
The Reserve Bank of India (RBI) is the prime regulator of the Indian currency. Being the Central Bank of India, RBI is responsible for devising monetary policy for the state, including providing guideline to foreign exchange transaction. It is a statutory duty of the governor of the bank to formulate short-term interest rates.
The Monetary Policy Technical Advisory Committee provides recommendations to the governor of the bank in this regard. The bank announces interest rates after every two months, six times a year. The principal objective of the RBI is to maintain economic stability inside the country along with strategic formulation of policies required for the growth of the country’s economy.
The RBI sets an annual target based on the cumulative Consumer Price Index (CPI). The Indian government has an agreement with the BRICS member nations for maintaining a currency reserve pool to help countries deal with liquidity issues. India also holds a currency swap contract with the neighbouring country Srilanka having a worth of 1.5 U.S. Dollars to avoid liquidity failure.
A Quick History of the Indian Rupee
The history of the Indian Rupee can be traced to the advent of the 6th century BC. There used to be coins with embedded sign marks called rupa. In some studies, the history of the Indian Rupee even leads to the origin of the 4th century BC when people had silver coins to be used as currency derivatives. The silver coins were named rupyarupa. It was the ruling regime of the Islamic Successor Sultan Sher Shah Suri who introduced Rupiya Coins made up of silver metals with a standard weight.
Read: Click here to start your FX brokerage account
It is believed that the Rupiya Coins continued up to the creation of the British Empire in the subcontinent. After the Bank of Hindustan and Bengal Bank came into existence, a paper currency was issued to replace the usability of the silver coins. The paper-based currency was given the name of Rupees. Later on, the Rupee was pegged into the British Sterlings after adopting Gold to be the standard reserve in 1898.
The Government created a monopoly on issuing currency notes countrywide after the Paper Currency Act was passed in 1861. The Reserve Bank of India established in 1935 was ranked as the National Central Bank of the subcontinent. It was located in Calcutta. The bank used to issue currency notes up to 1938. After two years of independence from the British Empire, the Indian Rupee started getting printed in Hindi with an image of Mahatma Gandhi. In 1957, the Indian government also issued sub-units of currencies in the form of coins. These coins were named Naya Paisa having a worth of 100 coins per Rupee.
Read: SEBI Brokerage Guide
National Economy of India
The Indian Rupee ranks to be the 20th most traded currency in the world. It is also the world’s fourth strongest currency in terms of GDP. With a population totaling more than one billion, the Indian economy is one of the most emerging open-market economies in the world. Earlier, the currency market in India was confined to strict regulatory restrictions, and forex trading had a very limited scope in India. However, the government seems to be rationalizing its policies concerning foreign trade and investment.
India’s major industry sector includes food and textile processing units, transportation, steel, petroleum, cement, machinery, mining, pharmaceuticals, equipment, and software houses. It is also believed that the Indian economy is well-diversified with sources of its economic division into industry and agricultural units on both large and small scales.
The Indian farming industry is witnessing an annual increase of 5% with nearly half of the country’s population being employed in the agricultural sector. As far as the development of the Indian service sector is concerned, it is also known to be lapping the satisfactory level of progress. The Information Technology (IT) sector has given the Indian economy an edge over its neighboring countries. It contributes around 60% to the growth of the economy along with other services sectors in India.
The Indian economy has, however, slowed down over recent years. Economists believe that several factors might have played a role in stepping down the progress of the Indian economy, such as global economic crises, and concerns of foreign investors over the Indian current account deficit. The country is also exposed to socio-economic challenges, including domestic migration from rural to urban cities, overstressed educational system, deficient infrastructure, and poor power-generation setup.
- Future of Indian Rupee
- When will the Indian Rupee value increase against the US Dollar?
- Why is the Indian Rupee so weak against the USD
Setting aside all the challenges, the overall outlook of the Indian Rupee still seems very bright. The young population, sound investment plans, and saving rates together with an increased level of integration into the global economy provides hope for strengthening of the Indian Rupee once again.
As far as the scope of forex trading in India is concerned, Investors tie hopes with the Indian policy-makers to broaden the availability of tradable instruments and ease up the regulatory restrictions.
At present, Indian traders are allowed to trade currency derivatives in seven pairs, including USD/INR, EUR/INR, GBP/INR, and JPY/INR along with cross currency pairs, such as in EURUSD, GBPUSD, and USDJPY. Not to mention, India’s major trading partners include the United Arab Emirates, Hong Kong, America, Saudi Arabia, China, Sri Lanka, Singapore, Vietnam, and the United Kingdom.