Convertibility of currency

The term convertibility of currency means that it can be freely

converted into any other currency. It helps in the removal of
quantitative restrictions on trade and payments on current account.

After 1991, Indian government announced partial convertibility of

rupee from March 1, 1992. Under this 40% of earnings were
convertible in rupee at officially determined exchange rate and the
remaining 60% of the exchange earnings were convertible at market
determined exchange rate.

The government of India, in March 1993, introduced a fully unified

market determined exchange rate system.
Convertibility of rupee on current account:

Convertibility on current account is defined as, “the freedom to buy or

sell foreign exchange”.

1. To make payment dues in foreign trade

2. Payment due as interest on loans
3. Moderate remittances for family living expenses.

Convertibility of current account relates to the removal of restrictions

on payments of imports and export of goods, services and factors of
production.
Capital Account convertibility:

It refers to the removal of restrictions on payments relating to the

capital transactions like inflow and outflow of short-term and
long-term capital.

Implications of convertibility:

1. Authorised dealers are empowered to release foreign exchange

without prior approvals.
2. Exporters find it easy to transact
3. Many bureaucratic hurdles are eliminated in the process of obtaining
foreign exchange
4. More than 100 countries allowed 100% convertibility.
Thank You