India’s central bank is laying the groundwork for a major shift in global trade settlements: rupee internationalization. The Reserve Bank of India (RBI) is actively exploring mechanisms that will allow free-trade partners to settle cross-border transactions directly in the Indian currency, reducing dependence on third-party currencies like the US dollar.
According to a person familiar with the matter, initial steps include setting up direct rupee reference rates for several trading partners. Earlier this month, the RBI introduced reference rates for the UAE’s dirham and Indonesia’s rupiah, expanding beyond existing benchmarks linked to the US dollar, euro, Japanese yen, and British pound. Similar frameworks are being developed for neighboring countries and Mauritius, underscoring India’s long-term push to boost the rupee’s role in global commerce.
Rupee Internationalization: A Strategic Push in Global Trade
The move aligns with Prime Minister Narendra Modi’s vision of positioning the rupee as a credible international currency. Authorities see wider use of the rupee as a way to lower transaction costs, reduce risks for businesses, and limit the need for large foreign exchange reserves. For India, which aims to transform into a developed economy by 2047, achieving wider global acceptance of the rupee is both a strategic and symbolic milestone.
International observers note that India’s efforts mirror broader regional trends. China, for example, has been steadily pushing for greater use of the yuan in international trade. By advocating rupee internationalization, India is seeking to secure its place in an evolving global financial system where a multi-currency regime is seen as more stable than reliance on the dollar alone.
Global Context and Challenges
Despite these efforts, challenges remain. The rupee is currently Asia’s second-worst performing currency after the Indonesian rupiah, pressured by foreign investor outflows and concerns over high US tariffs. The RBI has intervened in markets through significant dollar sales to curb volatility and prevent further depreciation.
Still, momentum is building. India has free-trade agreements with more than a dozen countries, including the UK, Australia, and the UAE, and is negotiating additional deals with the US, EU, Peru, Oman, and New Zealand. In all these negotiations, India is placing rupee invoicing on the agenda, signaling that currency stability and independence are now central to its trade strategy.
Rupee Internationalization: Balancing Global Diplomacy
New Delhi is treading carefully to avoid the impression that its push is a bid to undermine the dollar. Critics in the West, including former US President Donald Trump, have accused the BRICS grouping of trying to create an alternative to the greenback. However, Indian officials and economists emphasize that the country’s focus is not on de-dollarization but rather on enhancing the rupee’s usability in international transactions.
“The focus of authorities is on internationalization of the rupee by increasing its usability for trade and capital transactions among neighboring countries,” said Gaura Sen Gupta, chief economist at IDFC FIRST Bank. “It has never been portrayed as an anti-dollar move.”
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