Indian central bank names panel to create covertible currency
NEW DELHI – India’s central bank on Monday appointed a panel of experts to create a fully convertible currency, nearly a decade after such plans were shelved following the Asian economic crisis.The announcement came hours after Finance Minister P. Chidambaram told a business conference that the Reserve Bank of India, the country’s central bank which regulates currency transactions, would take the next steps toward convertibility.”Given the changes that have taken place over the last two decades, there is merit in moving towards fuller” convertibility of the rupee, the Reserve Bank of India said in a statement.S.S. Tarapore, a former deputy governor of the bank, will head the committee comprised of economists and officials, the central bank said. The panel is likely to begin the review process May 1 and submit its findings by July 31.India’s rupee is only partially convertible, meaning that most capital account transactions – investment money flowing in and out of the country – are subject to approval by the central bank. Other transactions related to merchandise trade are handled at market rates and without official approval.Prime Minister Manmohan Singh said over the weekend that the country’s economic position had become “far more comfortable” and India planned to allow full freedom to convert the rupee into foreign currencies to buy stocks, properties and other capital assets.Singh said such moves would also help India realize its aim to make its business capital, Bombay, a financial hub in Asia.India officially fixed the rupee’s exchange rate until 1991, when it made the first move to allow the market determine rupee’s value in relation to other currencies for select transactions.Restrictions on most trade-related transactions and remittances were lifted in the following years.Transactions in some capital assets have also been freed from the central bank’s control, but a complete flotation of the rupee was delayed, fearing the country could face a crisis like the East Asian currency turmoil of 1997. That crisis devalued currencies of many countries, wrecked growth and left thousands of people unemployed.But India’s rising foreign exchange reserves, which now total $144 billion, and a strong rupee appear to have contributed to the government’s latest liberal stance. So far this year, the rupee has appreciated nearly 1.5 percent against the U.S. dollar. On Monday, the dollar bought 44.423 rupees.Many institutional investors are transferring savings to India because of higher interest rates and a booming stock market, and rising exports have brought in more U.S. dollars and other foreign currencies.
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