Rupee Internationalisation - by way of Brick Lane?

India’s central bank, the RBI, has long been wary of discussing or even admitting the existence of offshore Rupee transactions. Yet this year’s UK India Economic Financial Dialogue (EFD) made a significant breakthrough in that both countries supported the City of London and R5’s plans to create a Rupee Internationalisation Initiative in London.

The aim is to work closely with India to develop an offshore deliverable Rupee market in much the same way that CNH and CNY work for China. Of course an important collaborator and competitor in all these efforts to internationalise the Rupee is also Singapore.  Home to Masala bond issuance and a robust NDF market in rupees, Singapore must also be a centre to develop this emerging currency.  With Dubai as the all important third leg in an international strategy for INR well beyond Mumbai and the GIFT.

The first step is to encourage pooling of offshore Rupee to drive demand for more innovative financial products and to meet the need of investors seeking easier exposure to the Indian market.  That first step, and the next and so on will likely be slow. Insert old Indian saying here - but working together with India will ensure London can both teach and learn at the same time.

London is home to 80% of the world’s Masala bonds
London is home to 80% of the world’s Masala bonds

London is home to 80% of the world’s Masala bonds  (the rupee denominated bonds listed offshore) and is where HDFC issued the world’s largest Masala bond in March. Not only is this good for London and issuers like HDFC, it is also a good draft for the much bigger job of the internationalisation of the Rupee overall. 

This is all hot on the heels of the Features and trends of NDF markets for emerging economy currencies study from the City of London last year.

R5 was invited to be in attendance in Mumbai at the presentation of this report for the RBI. Now unclassified it is available and contains some very useful data. Written by the Indira Gandhi Institute of Development Research (IGIDR) and commissioned by the City of London, this report highlights the significance of the rupee-denominated NDF markets. It utilises multiple sources to demonstrate the sizeable offshore pools of rupees which is almost equal the onshore ADV. At the time of writing the UK elections had just put the gas on post BREXIT Indian relations so the thought of a London Deliverable Rupee market may not be so crazy after all.