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April 5th 2006

India considers currency liberalization

Over the past decade, many aspects of India’s economy have been loosened and reformed as the country sought to match the growth of China. One facet that has yet to be liberalized, however, is the exchange rate system. While the Indian Rupee is technically free-floating, repeated intervention by India’s Central Bank has prevented it from appreciating. Further, the Rupee remains only partially convertible, for it is very difficult for Indians to invest domestic capital in foreign assets. As a result, India has built up foreign exchange reserves of nearly $150 Billion. This may soon change, as India’s parliament is finally mulling the possibility of full convertibility. The Economist reports:

A more open capital account would bring great benefits—notably, faster growth through easier access to capital. A convertible rupee is also essential if Mumbai is to fulfill Mr. Singh’s ambitions for it as a regional financial center.

Read More: Fear of Freedom

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Posted by Adam Kritzer | in Emerging Currencies, Politics & Policy | No Comments »

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