RBI Proposes Enhanced Flexibility in Forex Transactions for Market Efficiency

The Reserve Bank of India (RBI) is spearheading an initiative to inject greater flexibility into foreign exchange dealings. Proposing that authorized persons, such as banks and standalone primary dealers, can now delve deeper into market transactions, the RBI aims to streamline hedging exposures, balance sheet management, and market-making processes.

According to the draft directions titled 'Foreign Exchange Dealings of Authorised Persons,' the central bank envisages a framework where these authorized dealers can actively participate in foreign currency borrowing and lending, along with trading on electronic platforms. Such platforms must have regulatory backing from countries that are members of the Financial Action Task Force (FATF).

In a move that could significantly impact the banking sector, the RBI's proposal also alludes to the possibility of banks hedging gold price risks in overseas markets. This aligns with their current allowance under the Gold Monetisation Scheme, 2015. The RBI has opened up the floor for public comments on these comprehensive draft guidelines until March 10.