Why there are very limited currencies that are paired with inr?

<p id="isPasted">The limited number of currencies paired with the Indian Rupee (INR) is primarily due to strict regulations imposed by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) to maintain economic stability, prevent excessive speculation, and manage capital flows. India's capital account is only partially convertible, meaning there are controls on how much money can move in and out of the country for investment purposes.&nbsp;</p><p><strong>Regulatory Framework and Economic Stability</strong></p><p>The primary reason for these limitations is the regulatory environment in India, governed by the Foreign Exchange Management Act (FEMA).&nbsp;</p><ul><li>Economic Stability and Capital Control: Unrestricted forex trading could expose the INR to high volatility and speculative attacks, potentially leading to sudden capital outflows that could destabilize the economy. The RBI actively manages foreign exchange movements to ensure financial stability.</li><li>Preventing Speculation: By limiting the number of tradable pairs and mandating that trades occur on recognized domestic exchanges (like the NSE and BSE) through authorized brokers, regulators curb excessive speculation, which protects retail investors and the larger economy.</li><li>Partial Capital Account Convertibility: The rupee is fully convertible on the current account (for trade in goods and services), but only partially convertible on the capital account (for investments). This allows the government to control the flow of investment capital across borders. </li></ul><p><strong>Market Dynamics and Liquidity</strong></p><p>The availability of currency pairs is also influenced by market forces, primarily trade relationships and liquidity.&nbsp;</p><ul><li>Major Trade Partners: The permitted currency pairs (USD/INR, EUR/INR, GBP/INR, and JPY/INR) involve currencies of India's major trade partners. The demand for these currencies is driven by actual import and export needs. The USD/INR pair is the most traded due to the US dollar's dominance as the global reserve and settlement currency for international trade (e.g., crude oil imports).</li><li>Liquidity: The permitted pairs have sufficient liquidity in the Indian market, ensuring smoother transactions. Other, less frequently traded currencies would have wider spreads and lower liquidity, making them riskier and less efficient for the market. </li></ul>