Former RBI Governor Y V Reddy has said as the head of the central bank, he had resisted the full capital account convertibility of rupee and now even the IMF has come to a conclusion that some restrictions in this regard are desirable. He further said that capital account convertibility of rupee is not on the agenda now as it was during his tenure as RBI governor in 2003-2008. “If you recall, full capital account convertibility was almost a demand by everybody when I was RBI Governor and I resisted it to the extent possible. And I think we went in our own way,” Reddy told PTI in an interview. “So now even the IMF, which was advocating the full capital account convertibility, is saying yes there may be some merit in some capital account management,” he added. The former RBI governor, who has recently released his autobiography ‘Advice and Dissent: My Life in Public Service’, further said, “So now, I don’t think full capital account convertibility is on the agenda. It is not so much on agenda as it was during my period.”
At present, the Indian currency is convertible only on current account, though some capital account transactions are permitted. A full capital account convertibility means no restriction on cross border movement of currency. Asked whether Chinese renminbi would replace the US dollar as dominant currency, Reddy said the share of renminbi in the trade has increased and some investment in the Chinese currency has also increased. “But much of it is government to government, I don’t think private sector trade, international trade has accepted Chinese yuan. And the prospects that the financial markets will accept this is not very high. So I would say that the chances in near future of China’s renminbi replacing the US dollar is virtually nil,” the former RBI Governor noted. Asked whether he favours inclusion of Indian rupee in SDR basket, Reddy said that he does not think India rupee gains anything by becoming part of SDR basket. He, however, noted that if SDR basket is expanded in the world then the first candidate will be India.
“In fact, others may ask Indian to be part of SDR. But I don’t think it is worthwhile now,” Reddy said. The Special Drawing Rights or SDR is an international reserve asset created by the International Monetary Fund in 1969 to support the Bretton Woods’ fixed exchange rate system. Chinese renminbi (RMB) was included in SDR basket as the fifth currency last year. Replying to a query on globalisation, he said the pace of globalisation has slowed down after the globalisation. “…global capital flow has come down, rather growth has come down and politically also, with the election of Donald Trump in the US, there is a lot more emphasis on the domestic economy. And to some extent, the enthusiasm for global economy has moderated,” Reddy observed.