Rupee - the new Asian currency

The rupee has arrived. Long before the domestic currency gets the `convertible’ tag, it’s being freely accepted and exchanged in Singapore, Malaysia, Indonesia, Hong Kong, Sri Lanka and other countries. Till now, such transactions were confined to select departmental stores which are favourite of Indian tourists; now more and more shops, hotels and even money changers are willing to accept the local legal tender.

This means no double conversions, and therefore, extra cost while exchanging Indian rupees. This may not be quite legal since in the international money market, the rupee is still not a deliverable currency. Nonetheless, its acceptance is on the rise, thanks to growing trade with India and a surge in tourist inflows.

It has certainly made things easier for the Indian tourists who can simply carry rupees, and do away with travellers cheques. In most Asian countries, the nearest `money exchange’ shop will give them the local currency against rupees. Many feel the trend has picked with hints that convertibility may be matter of time.

Travel agents, in India, say that since many Indians are travelling abroad, especially to Asian countries, many banks and foreign exchange agents abroad have started accepting Indian rupees. Tarmo Wong, a manager with `money exchange’ shop in one of the biggest hotels in Singapore, said, “We have orders to accept the Rs 500 and Rs 1,000 bills. We have been doing this for almost 6-8 months now.” Some of the `money changers’ in Singapore have a similar view.

Interestingly, in the small, but growing parallel market, the conversion rates have become finer for the Indian traveller or the business tourist. Earlier, a handful of outfits accepted the Indian rupee and usually the buy/sell spread was high.

Most travellers (even today) convert their rupees in US dollars in India and then exchange them again in local currencies of countries they visit. The cost of such double conversion could be as high as 5%. Prakash Dagia, a regular business traveller to countries like Indonesia, Bangladesh and Malaysia, said, “In the past few months, the rupee has gained acceptance in almost all countries in Asia. The best part is you can exchange it back to Indian rupees when you’re flying back to India.”

Full currency convertibility of the Indian rupee means that you can travel abroad and buy dollars you need over the counter. Partial currency convertibility already exists in the system. For instance, you can spend through your credit card and pay the money spent in foreign currency back in India in Indian rupees. Currency convertibility refers to the absence of any restriction on the holding of foreign currencies by residents and of the national currency by foreigners, and on free conversion between currencies. It does not preclude restrictions on the type and quantity of non-currency assets that residents can hold abroad or foreigners can hold in the country.