RBI Slashes No-Underlying FX-Derivative Limit to $5 m, Adds 20 % Cash Reserve & Creates Dollar Window for Oil PSUs

Central banks periodically ration derivative leverage when reserves thin and the currency slips: in August 2013, during the Fed “taper-tantrum”, RBI ran a similar OMC swap window and halved open-position limits; in 1998 Bank Negara Malaysia imposed outright bans after reserves fell below US$20 bn. Today’s move echoes those emergency playbooks—signalling that despite record-high US$785 bn reserves just a month ago, a US-rate spike, $50 bn draw-down and an INR at 96.8/US$ have revived balance-of-payments anxiety. The rules push the system back toward a pre-2000s, tightly-managed capital account even as India courts global investors, illustrating the long-standing tension between liberalised markets and exchange-rate defence. Over a century, such episodic tightening reminds us that financial globalisation advances in cycles; whenever external shocks outpace buffers, authorities revert to control tools first deployed after the 1931 sterling crisis—suggesting that the pendulum between openness and control will keep swinging well beyond 2126.