The growing clamor for the launch of currency futures in India throws light on the untapped potential of such hedging instruments in India.

Any economy needs an effective hedging instrument and clearly currency futures represent such an instrument. If you ask whether currency futures are desirable in India it is a resounding `yes'. It's no exaggeration that the recent episode of phenomenal rise in the value of Indian rupee has sent positive reverberations across the world about the growing strength of the Indian economy as well as its underlying currency the rupee. Adding to the euphoria of Indian growth story its currency has gained 10% already this year from 15% last July. Interestingly the currency which nosedived to a three-year low of Rs. 47.04 per dollar in July 2006 hit a nine-year high of Rs. 40.20 in July 2007 and has been currently hovering around Rs. 40-42 per dollar.

The rupee appreciation has significantly boosted the demand for rupee-denominated assets across the globe. Though a strong rupee came as a blessing in disguise for Indian importers exporters started to feel the pinch as it began to erode the country's competitiveness and became a threat to its buoyant export growth. If India is to sustain its momentum over long-term in the era of globalization the need of the hour is to develop an effective mechanism which will take care of currency related risks. This underlines the pressing need to kick start a domestic currency futures market wherein Indian businessmen can effectively hedge the foreign exchange (forex) risks that they encounter.

Close on the heels of Dubai Gold and Commodities Exchange (DGCX) which launched rupee futures recently in June 2007 the RBI has formed an internal committee to examine the issues related to the launch of currency futures in India. As the Indian economy continues to grow so will be the need for an efficient risk management tool. All in all the sooner India launches currency futures the better off it will be.

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