July 18, 2011

Current account convertibility Vs Capital account convertibility?

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What is the difference between the current account convertibility and capital account convertibility?
Currency convertibility means “the freedom to convert one currency into other internationally accepted currencies, wherein the exporters and importers where allowed a free conversion of rupee.But still none was allowed to purchase any assets abroad.
Capital Account Convertibility means that rupee can now be freely convertible into any foreign currencies for acquisition of assets like shares, properties and assets abroad. Further, the banks can accept deposits in any currency.
so if a foreigner buys a building in India, and after 5 yrs its selling price rises so sells it at five times the cost he collected, now he has rupees in hand, can he easily convert these rupees into say ‘yen’ easily?
Considering that exchange rate is better in terms of INR-JPY, the foreigner would want to convert the currency into yen..and this can be done if complete capital a/c convertibility takes place..
Remittance to foreign countries from india is restricted by RBI. for import of machines you are remitting abroad means it is capital account convertibility. if you remit money to your son or relative living abroad means current account convertibilty.

Category : Economics

Comments

4 Responses

  1. radhika says:

    easy languange to understand the concept.

  2. ashish says:

    How is remittance for imports a capital account convertibility..?? And that for remitting money to relatives abroad a current account convertibility..??

  3. biswajit says:

    awesome articles

  4. Ponnu says:

    Simple but helpful

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