- Thrust on structural reforms in foreign exchange markets commenced in the early 1990s. Hitherto, Indian Rupee was kept under pegged exchange rate regime.
- In July 1991, process of official Rupee devaluation began in order to end the regime of administered exchange rate.
- In March 1992, RBI introduced dual exchange rate in the form of LERMS (Liberalized Exchange Rate Management System)
- From March 1992 to February 1993, Indian Rupee depreciated from about 25.80 to about 32.65 as a part of alignment with market forces.
- In March 1993, the regime of administered exchange rate was completely eliminated and thereby India shifted from fixed to liberalized to unified exchange rate system.
- From August 1994 onwards, India started moving in the direction of current account convertibility.
- There after Indian Government has initiated excellent policy measures in the direction of full convertibility of Indian Rupee, road map for which was provided by Tarapore committee.
- Implementation of some of the recommendations of Sodhani committee on foreign exchange markets in 1995 and Tarapore committee on capital account convertibility in 1997 greatly aided in deepening of foreign exchange markets.
- Ceiling for remittances for resident Indians was increased in a phased wise manner under the liberalized remittance scheme and now it stands at $200,000 per financial year.
- Limit on remittances for overseas investments for corporates have been enhanced in order to facilitate overseas acquisitions by Indian corporates.
- Guidelines for external commercial borrowings (ECB) have been liberalized.
- India has witnessed huge inflows of foreign capital during the last few years and as a result of which, foreign exchange reserves have burgeoned to a whooping figure of $286 billion by August 2008 as compared to $5.8 billion in march 1991.M
- In the last 3-4 years, Indian forex market has truly integrated with global markets.
- Range of forex products, ample liquidity, huge turn over and extensive participation provide a concrete proof of distinct vibrancy in the Indian forex markets.
- Daily turn over in Indian forex market has increased from $23.7 billion in March 2006 to about $33 billion in March 2007.
- Off late, excessive volatility in the exchange rate, an offshoot of liberalized foreign exchange market, has caught the attention of large number of investors and policy-makers. Large scale fluctuations in exchange rate can adversely impact efficient price discovery, export performance, sustainability of corporate balance sheets and preservation of current account balance.
- Experts in the field suggested to have well-developed OTC and exchange-traded foreign exchange derivative markets in order to upgrade the existing foreign exchange markets to international standards.
- In order to enable various entities to manage with Rupee volatility, RBI issued comprehensive guidelines in April 2007 on the usage of foreign exchange swaps, forwards and options in the OTC forex markets.
- Simultaneously, RBI set up an internal group to study the advantage of introducing exchange-traded currency futures, which recommended introduction of currency futures on recognized exchanges in its repor . RBI Internal group suggested that exchange traded currency futures serve the same economic purpose as OTC forwards but in a fundamentally different way and offer excellent advantages over OTC forwards.
- Subsequently in February 2008 RBI-SEBI standing technical committee was formed to work out the exact modalities of exchange traded currency futures.
- Based on the report of the RBI-SEBI committee, RBI issued guidelines on trading of currency futures on recognized stock exchanges in August 2008.
- Exchange-Traded currency futures were finally launched in India on 29th August 2008 on NSE (National Stock Exchange of India).
- Other recognized exchange like BSE and MCX would soon commence Exchange-Traded currency futures.