The Reserve Bank of India’s (RBI’s) restrictions on the operation of the Exchange Earner’s Foreign Currency Account, compelling holders to convert forex into rupees to the stipulated extent, are intended to augment the supply of foreign exchange to the market and arrest the depreciation of the rupee. The underlying forex is already with the authorised dealers and there will be no addition to the dollar supplies by the conversion. But, the RBI’s credibility as a liberalising central bank marching towards full convertibility has taken a beating.
Moreover, the account holders will lose the advantage of having the best of both worlds. Their accounts were as good as having the money abroad but they fetched better interest. Think of a Resident Foreign Currency Account holder getting 0.24 per cent on savings bank account or 3.054 per cent on a one-year dollar deposit in India against about 0.05 per cent or 0.5 per cent, respectively, in the US. He could always access his dollars as easily as he would in a bank abroad. Now, the large number of non-residential Indians who have already returned home or are going to do so in the near future would prefer to keep the money on foreign shores. Exporters will delay the repatriation of the sale proceeds till the last moment.
A Seshan, Mumbai
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