Convertibility
| Rank | Currency | ISO 4217 code (Symbol) |
% daily share (April 2010) |
|---|---|---|---|
| 1 | United States dollar | USD ($) | 84.9% |
| 2 | Euro | EUR (€) | 39.1% |
| 3 | Japanese yen | JPY (¥) | 19.0% |
| 4 | Pound sterling | GBP (£) | 12.9% |
| 5 | Australian dollar | AUD ($) | 7.6% |
| 6 | Swiss franc | CHF (Fr) | 6.4% |
| 7 | Canadian dollar | CAD ($) | 5.3% |
| 8 | Hong Kong dollar | HKD ($) | 2.4% |
| 9 | Swedish krona | SEK (kr) | 2.2% |
| 10 | New Zealand dollar | NZD ($) | 1.6% |
| 11 | South Korean won | KRW (₩) | 1.5% |
| 12 | Singapore dollar | SGD ($) | 1.4% |
| 13 | Norwegian krone | NOK (kr) | 1.3% |
| 14 | Mexican peso | MXN ($) | 1.3% |
| 15 | Indian rupee | INR | 0.9% |
| Other | 12.2% | ||
| Total | 200% | ||
Officially, the Indian rupee has a market-determined exchange rate. However, the RBI trades actively in the USD/INR currency market to impact effective exchange rates. Thus, the currency regime in place for the Indian rupee with respect to the US dollar is a de facto controlled exchange rate. This is sometimes called a "managed float". Other rates (such as the EUR/INR and INR/JPY) have the volatility typical of floating exchange rates. Unlike China, successive administrations (through RBI, the central bank) have not followed a policy of pegging the INR to a specific foreign currency at a particular exchange rate. RBI intervention in currency markets is solely to ensure low volatility in exchange rates, and not to influence the rate (or direction) of the Indian rupee in relation to other currencies.
Also affecting convertibility is a series of customs regulations restricting the import and export of rupees. Legally, foreign nationals are forbidden from importing or exporting rupees; Indian nationals can import and export only up to 7,500 rupees at a time, and the possession of 500- and 1,000-rupee notes in Nepal is prohibited.
RBI also exercises a system of capital controls in addition to intervention (through active trading) in currency markets. On the current account, there are no currency-conversion restrictions hindering buying or selling foreign exchange (although trade barriers exist). On the capital account, foreign institutional investors have convertibility to bring money into and out of the country and buy securities (subject to quantitative restrictions). Local firms are able to take capital out of the country in order to expand globally. However, local households are restricted in their ability to diversify globally. Because of the expansion of the current and capital accounts, India is increasingly moving towards full de facto convertibility.
There is some confusion regarding the interchange of the currency with gold, but the system that India follows is that money cannot be exchanged for gold under any circumstances due to gold's lack of liquidity; therefore, money cannot be changed into gold by the RBI. India follows the same principle as Great Britain and the U.S.
Read more about this topic: Indian Rupee