‘FREELY CONVERTIBLE CURRENCY’ is not defined in Foreign Exchange Management Act, 1999 [‘FEMA Act’], however it seems that it has been borrowed in Indian Act from Articles of Agreement of the International Monetary Fund [‘Fund’] of United Nation and bye laws thereof;
ARTICLE XXX (F) OF ARTICLES OF AGREEMENT OF THE INTERNATIONAL MONETARY FUND defines ‘’a freely usable currency” means a member’s currency that the Fund [IMF] determines
(i) is, in fact, widely used to make payments for international transactions, and
(ii) is widely traded in the principal exchange market
By-Laws, Rules and Regulations of the International Monetary Fund empower International Monetary Fund to notify the freely currencies as under:
Bye Laws O-3. (a) The Fund shall determine the currencies that are freely usable in accordance with Article XXX(f ).
Bye Laws O-3. (b) The Fund shall consult a member before placing its currency on, or removing it from, the list of freely usable currencies.
Pursuant to Article XXX (f) and bye laws referred above , and after consultation with the members concerned, the Fund determines that, effective from January 1, 1999 and until further notice,
(i) The EURO,
(ii) The JAPANESE YEN,
(iii) The POUND STERLING, and
(iv) The U.S. DOLLAR
Are freely usable currencies.
Further “The Fund determines that, effective from October 1, 2016, and until further notice, the CHINESE RENMINBI is a fully usable currency.
So as on date the EURO, JAPANESE YEN, POUND STERLING, U.S. DOLLAR and the CHINESE RENMINBI is a fully usable currency.
Relevance of freely convertible currency under Foreign Trade Policy
I. Realisation of Exports must be in freely convertible currency : Para 2.52 of the Foreign Trade Policy mandate that all export contracts and invoices for exports shall be denominated/issued either in freely Convertible currency or Indian rupees but export proceeds shall be realized in freely convertible currency.
II. Entitlement under Merchandise Exports from India Scheme (MEIS) : Para 3.04 of foreign trade policy specify the basis of calculation of reward under the scheme is realized FOB value of exports in freely convertible foreign currencies, except to export proceeds realized in Indian Rupees against exports to Iran as allowed under para 2.53 of foreign trade policy.
III. Status holder recognition under Foreign Trade Policy: The export performance for recognition of status (one star, two star, three star, four star, five star) will be counted on the basis of FOB of export earning in freely convertible foreign currencies.
IV. Export Obligation under Advance Authorization: Para of 4.21 of foreign Trade Policy specify that export counted towards obligation under advance authorization scheme shall be realized in freely convertible currency except for deemed exports which can be realized in INR.
Relevance of freely convertible currency under Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016
|COUNTRIES OF EXPORTS/IMPORTS||GENERAL RULE OF RECEIPT- AGAINST EXPORT FROM INDIA.||GENERAL RULE OF PAYMENT AGAINST IMPORT INTO INDIA.|
|Nepal and Bhutan||Receipt may be in Rupees or free foreign exchange||Payment may be in Rupees|
|Islamic Republic of Iran||In accordance with the directions issued by the Reserve Bank to the authorized dealers from time to time||In accordance with the directions issued by the Reserve Bank to the authorized dealers from time to time|
|All countries other than those mentioned above||Receipt in any freely convertible currency||Payment in any freely convertible currency|
Trade Credit (‘TC’) Policy: Trade Credits (TC) refer to the credits extended by the overseas supplier, bank, and financial institution. TC can be raised in any freely convertible foreign currency (FCY denominated TC) or Indian Rupee (INR denominated TC)
|Change of currency of borrowing||Change of currency of TC from one freely convertible foreign currency to any other freely convertible foreign currency as well as to INR is freely permitted.||Change of currency from INR to any freely convertible foreign currency is not permitted.|
External Commercial Borrowings:
|Currency of borrowing||Foreign Currency denominated ECB
|INR denominated ECB|
|Eligible borrowers||a. All entities eligible to receive FDI.
b. Port Trusts;
c. Units in SEZ;
d. SIDBI; and
e. EXIM Bank of India
|a. All entities eligible to raise FCY ECB; and
b. Registered entities engaged in micro-finance activities, viz., registered Not for Profit companies, registered societies/trusts/ cooperatives and Non-Government Organizations.
|Change of currency of borrowing||Change of currency of ECB from one freely convertible foreign currency to any other freely convertible foreign currency as well as to INR is freely permitted.||Change of currency from INR to any freely convertible foreign currency is not permitted.|
ECB facility for Startups: The borrowing should be denominated in any freely convertible currency or in Indian Rupees (INR) or a combination thereof. In case of borrowing in INR, the non-resident lender, should mobilise INR through swaps/outright sale undertaken through an AD Category-I bank in India.
Disclaimer: Effort have been made to make content error free, but it is possible that some error might have crept into content.Conclusion: As on date only The EURO, The JAPANESE YEN, The POUND STERLING, The U.S. DOLLAR and CHINESE RENMINBI is a fully usable currency.
Prepared and Compiled by: CA Rajnish Kumar, Mobile: +91-8130883807, Email: [email protected]