In recent years, India has taken bold steps to internationalise the rupee (INR), allowing it to be used for cross-border trade, investments, and settlements. The move is part of India’s vision to strengthen its position in the global economy, reduce dependency on the U.S. dollar, and support businesses through cost-effective trade mechanisms.
But the big question remains: Can India really make the rupee a global currency?
What Does Internationalising the Rupee Mean?
Allowing foreign trade partners to settle payments directly in INR.
Encouraging global central banks to hold INR as part of their reserves.
Supporting foreign investments and lending in rupee terms.
Expanding India’s influence in global financial markets.
Why Is India Pushing for a Global Rupee?
Reduce Dollar Dependency – Diversify trade settlements and lower forex risks.
Boost Trade with Sanctioned Economies – Countries facing currency restrictions (like Russia) may prefer INR trade.
Strengthen Economic Sovereignty – Protect India from global dollar liquidity shocks.
Promote Indian Financial Markets – INR-denominated bonds and trade instruments attract global investors.
Challenges in Making INR Global
Convertibility Restrictions: The rupee is not fully convertible on the capital account, limiting free flow.
Trust & Stability: Global currencies need decades of trust, backed by strong macroeconomic fundamentals.
Trade Volume: India’s share in global trade is about 2–3%, relatively low compared to the U.S. or China.
Geopolitical Concerns: Global investors may hesitate given regional tensions.
Infrastructure Gap: Global payment systems (like SWIFT) are still dollar-dominated.
Steps India Has Taken
Special Vostro Accounts: RBI allowed foreign banks to open rupee accounts for trade settlements.
Energy Trade in INR: Efforts to settle crude oil imports with countries like Russia in rupees.
Bilateral Currency Pacts: Exploring agreements with nations in Asia, Africa, and Latin America.
Promotion of Rupee Bonds: INR-denominated “Masala Bonds” attracting foreign investors.
What Lies Ahead?
Short Term: Rupee may see limited international use, mainly in bilateral trade with friendly nations.
Medium Term: Wider adoption in Asia and Africa, especially for energy and commodities.
Long Term: If India maintains high growth, builds financial depth, and ensures stability, the rupee could evolve into a regional reserve currency.
FAQs
Q1: Why does India want to internationalise the rupee?
A: To reduce dollar dependence, lower forex risks, and strengthen economic sovereignty.
Q2: Is the rupee fully convertible?
A: No, it’s partially convertible. Full convertibility is essential for global adoption.
Q3: Which countries trade with India in rupees?
A: Russia, Sri Lanka, Mauritius, and some African nations have shown interest.
Q4: Can the rupee replace the dollar?
A: Not in the near future. But it could emerge as a regional trade currency.
Q5: What are “Masala Bonds”?
A: Rupee-denominated bonds issued overseas to attract foreign investors.
Published on : 3rd October
Published by : SMITA
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