What’s the story
India is taking steps to facilitate easier transactions in the Indian rupee with its free-trade partners.
The move, which could strengthen the local currency over time, is being led by the Reserve Bank of India (RBI).
As part of this effort, the central bank plans to establish direct rupee reference rates for currencies like UAE’s dirham and Indonesia’s rupiah.
Broader push to promote rupee in international transactions
The RBI’s strategy also includes creating reference rates for neighboring countries and Mauritius.
This is part of Prime Minister Narendra Modi‘s broader push to promote the use of the rupee in international transactions, similar to China‘s efforts.
The move is expected to reduce risks and costs for businesses, reduce the need for holding higher foreign exchange reserves, and make India’s economy less susceptible to external shocks.
India’s ambition of becoming developed nation by 2047
India considers a credible international currency as key to its ambition of becoming a “developed nation” by 2047.
The International Monetary Fund (IMF) predicts that India will overtake Japan as the world’s fourth-largest economy this year and Germany by 2027-28.
The country also sees a multi-currency system as an ideal solution for global trade settlements.
Free-trade agreements and rupee invoicing
India has free-trade agreements with over a dozen countries and blocs, including the UK, Australia, and UAE.
The country is also in talks for similar pacts with the US, EU, Peru, Oman, New Zealand among others.
In all these negotiations, India is actively pushing for rupee invoicing and aims to internationalize the currency while avoiding the perception of de-dollarization.
Current status of Indian rupee as international currency
A 2023 RBI report on the rupee’s internationalization detailed short-term goals such as expanding currency swap agreements and bilateral trade arrangements.
It also suggested using the Asian Clearing Union for regional settlements and linking Indian payments with other countries.
Despite these efforts, Indian rupee is still not among the top 20 global payment currencies, according to latest SWIFT data.
