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India’s central bank, the Reserve Bank of India (RBI), is taking fresh steps to make it easier for free-trade partners to settle transactions in rupees — a move aimed at gradually strengthening the local currency, according to a person familiar with the matter, Bloomberg reported.
The RBI plans to establish direct rupee exchange rates without relying on the US dollar as a reference, beginning with the UAE’s dirham and Indonesia’s rupiah. Similar arrangements are being explored with neighbouring countries and Mauritius.
The initiative aligns with Prime Minister Narendra Modi’s broader goal of increasing the rupee’s role in global trade. Greater use of the local currency helps lower transaction costs, reduce dependence on foreign exchange reserves, and make the economy less vulnerable to external shocks.
India sees having a credible international currency as essential to its ambition of becoming a developed nation by 2047.
The rupee has been among Asia’s weakest currencies this year, pressured by capital outflows. However, timely market interventions by the RBI — including dollar sales — have helped stabilise the currency.
India is now incorporating rupee invoicing into its trade negotiations with several partners, including the United States, the European Union, Oman, and New Zealand. Officials have clarified that the move is not part of a de-dollarization drive.
“The focus of authorities is on internationalization of the rupee by increasing its usability for trade and capital transactions among neighbouring countries,” said Gaura Sen Gupta, chief economist at IDFC FIRST Bank. “It’s never been portrayed as a de-dollarization move.”
The RBI’s 2023 roadmap for rupee internationalization includes expanding bilateral currency swap arrangements, leveraging the Asian Clearing Union for settlements, and integrating India’s payment systems with those of partner countries.
Despite these efforts, the rupee still falls outside the world’s top 20 payment currencies, according to SWIFT data. The US dollar remains dominant, accounting for nearly 47 per cent of global transactions.
The RBI plans to establish direct rupee exchange rates without relying on the US dollar as a reference, beginning with the UAE’s dirham and Indonesia’s rupiah. Similar arrangements are being explored with neighbouring countries and Mauritius.
Part of PM Modi’s push for global rupee use
The initiative aligns with Prime Minister Narendra Modi’s broader goal of increasing the rupee’s role in global trade. Greater use of the local currency helps lower transaction costs, reduce dependence on foreign exchange reserves, and make the economy less vulnerable to external shocks.
India sees having a credible international currency as essential to its ambition of becoming a developed nation by 2047.
Rupee performance and market stability
The rupee has been among Asia’s weakest currencies this year, pressured by capital outflows. However, timely market interventions by the RBI — including dollar sales — have helped stabilise the currency.
India is now incorporating rupee invoicing into its trade negotiations with several partners, including the United States, the European Union, Oman, and New Zealand. Officials have clarified that the move is not part of a de-dollarization drive.
“The focus of authorities is on internationalization of the rupee by increasing its usability for trade and capital transactions among neighbouring countries,” said Gaura Sen Gupta, chief economist at IDFC FIRST Bank. “It’s never been portrayed as a de-dollarization move.”
Long-term plan for rupee internationalization
The RBI’s 2023 roadmap for rupee internationalization includes expanding bilateral currency swap arrangements, leveraging the Asian Clearing Union for settlements, and integrating India’s payment systems with those of partner countries.
Despite these efforts, the rupee still falls outside the world’s top 20 payment currencies, according to SWIFT data. The US dollar remains dominant, accounting for nearly 47 per cent of global transactions.
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