The global triennial survey on foreign exchange turnover showed trading in foreign exchange markets averaged $5.3 trillion per day in April 2013, up from $4.0 trillion in April 2010 and $3.3 trillion in April 2007.
The relatively more flexible Indian rupee's (INR) share in the overall daily turnover in the currency markets was just 1%, while China's inflexible renminbi's (CNY) share was 2.2%, reflecting Chinas growing clout in international economic arena, especially trade and foreign investment flows.
The Indian rupee slipped from 15th to 20th position in three years, coinciding with a sharp slowdown in economic growth from 9.3% in 2010-11 to a decadal low of 5% in 2012-13 and a widening of the current account deficit (CAD) from 2.7% of GDP to 4.8%.
The Indian rupee was among the worst-performing Asian currency, depreciating by almost a fifth since end May when US Fed announced its intention to taper the quantitative easing programme. While the Chinese economy has also slowed from 10%-plus to less than 8% within three years, its currency for the first time became one of the top 10 it climbed to 9th in 2013 from 17th in 2010. The Brazilian real moved up from 21st to 19th between 2010 and 2013, while South African Rand improved to 18th from 20th.
While announcing a raft of measures to arrest the rupee fall on the first day of his office on September 4, new RBI governor Raghuram Rajan highlighted the need to liberalise rules further to make the Indian rupee more acceptable in the global arena.
This might be a strange time to talk about rupee internationalisation, but we have to think beyond the next few months. As our trade expands, we will push for more settlement in rupees. This will also mean that we will have to open up our financial markets more for those who receive rupees to invest it back in. We intend to continue the path of steady liberalisation, he had said.
India has just concluded a new currency swap arrangement with Japan by raising the limit to $50 billion from $15 billion. The government is considering more such currency swap deals with countries with which India has a trade deficit.
Globally, FX swaps were the most actively traded instruments in April 2013, at $2.2 trillion per day, followed by spot trading at $2.0 trillion, BIS said.
The survey also shows that safe-haven appeal has increased the market share of US dollar to 87% in 2013 from 84.9% in 2010. The US dollar remained the dominant vehicle currency; it was on one side of 87% of all trades in April 2013. The euro was the second most traded currency, but its share fell to 33% in April 2013 from 39% in April 2010," BIS said, adding the turnover of the Japanese yen increased significantly from 19% to 23% between the 2010 and 2013 surveys.