Why is rupee not fully convertible? And what does it means that rupee is not fully convertible?

economy : Why is rupee not fully convertible? And what does it means that rupee is not fully convertible?

Answer by Ramamurthy Guruvayurappan:

A currency is fully convertible,  when there are no current account or capital  account restrictions for free movement of funds into the  country and out of the country. As there are lot of restrictions for free movement of funds from India and also into the country,  Indian Rupee is not fully convertible.

India is still a developing economy and has lot of inherent weaknesses.  We don't have surplus current account, meaning our exports and services earnings and other invisible exports are far less than imports. This always leads to pressure on Indian Rupee.

Ours is relatively closed economy, in the sense INR is not fully convertible. Typically when countries have opened their capital account, except a few occassions , countries have suffered financially. It may slow you down in good times, but it can be a protection during bad times.

But does not mean, you can be a partially closed economy always. You need to strengthen in all fronts and then open the economy towards taking the Indian Rupee fully convertible.

Why is rupee not fully convertible? And what does it means that rupee is not fully convertible?

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s