Dubai bourse to offer trading in Re futures

The Indian rupee will revisit the Gulf after over three decades, though not physically, as Dubai will have the world's only platform for trading in rupee futures. Till about mid-1960s, the rupee was the official currency in the Persian Gulf.

The Dubai Gold and Commodities Exchange (DGCX) would launch trading in Indian rupee futures from tomorrow. This will provide another avenue to individuals and companies to hedge their currency risks.

The rupee exposure risks are currently hedged in the non-deliverable forwards (NDF) market in east Asia and in the rupee forwards market in India.

Each Indian rupee contract on the DGCX would represent Rs 2 million and the prices would be quoted in US cents per 100 rupees, with a minimum price fluctuation of $2 per contract.

Currency futures are standardised exchange-traded contracts settled at a specified price on a specified date and are guaranteed by the clearing houses. Unlike futures contracts, forward contracts are negotiated between two parties for delivery of a cash commodity to a buyer at a future date.

Forwards contracts are normally traded in non-convertible currencies such as the Indian rupee. The rupee is not fully convertible on capital account. In the NDF market, only the notional gain or loss is exchanged on an agreed future date.

Currency traders said the rupee futures trading in Dubai is unlikely to have an impact on the forward contracts market or the NDF market. The daily turnover in the forwards market is about $2 billion and about $1 billion in the NDF market.

The traders are awaiting the interest that rupee futures generate on debut in Dubai. The supply of rupee currency to some of the Persian Gulf countries was stopped in the mid-1950s after India had a foreign exchange crisis. In 1959, the Indian rupee was replaced with the Persian Gulf rupee, which was printed and circulated by the Reserve Bank of India (RBI).

The circulation of a new rupee by the RBI was to reduce pressure on the country's foreign exchange reserves. After India devalued its currency in 1966, the Gulf countries began introducing their own currencies.