Impact of full

convertibility
Group A:
Arijit
Ishan
Kandarp (25)
Kunal
Mahashweta
What is full convertibility?
• The freedom to convert one currency into other internationally accepted
currencies
• Importance in International commerce
Current account convertibility
• Currency can be converted at existing market rates for trade purposes,
remittances, and indivisibles for any amount
• Correlation between a country's economy and  its current account
convertibility
Capital account convertibility

• Allows freedom to convert local financial assets into foreign financial

assets and vice-versa.

• Promotes easy and unrestricted flow of capital 

• 1997 Asian financial crisis

• Greek Debt Crisis

Benefits of full convertibility
• Encouragement to exports
• Incentive to send remittances from abroad
• A self-balancing mechanism
• Integration of world economy
• Specialization in accordance with comparative advantage
Risks of Full Convertibility
• Danger of leading to export of domestic currency, which may cause
macroeconomic instability
• High volatility because of greater exposure to forex markets and its
fluctuations
• It may bring low quality investment
• It may generate financial bubbles
• Foreign debt burden
• It’s a temptation that must be cautiously considered
State of Indian currency
The Indian rupee is a
Permission from partially convertible
RBI in early 1990s currency as of 2019 

Liberal reforms
in 1991
Benefits for India
• Sign of stable and mature markets
• Increased liquidity in financial markets
• Improved employment and business opportunities
• Onshore rupee market development
• Easy access to foreign capital
• Better access to a variety of goods and services
• Progress in multiple industry sectors
• Outward investments
• Improved financial systems
Risks for India
• High volatility
• Foreign debt burden
• Effects on balance on trades and exports
• Lack of fundamentals
THANK YOU