India’s recent choices — from expanding gold reserves to exporting its digital payments architecture —signal a quiet but consequential recalibration of its place in a dollar-centric world. India is not pursuing a dramatic break with the existing order. Instead, it is building insurance against the risks of allowing any single currency to dominate its external economic life.
For most of the post-war era, the global economy has been dominated by the US dollar. It has functioned as the main unit for invoicing trade, the primary asset in central bank reserves, and the reference point for commodity pricing.
This centrality rests not only on the size of the US economy, but on deep and liquid financial markets and a long-standing perception of legal and institutional stability. Yet, in recent years, two developments have begun to unsettle the old comfort: the growing use of financial sanctions as an instrument of statecraft, and rapid technological changes in payments and settlement.
Weaponisation of finance
The weaponisation of finance, whether through exclusion from payment networks, restrictions on access to reserves, or targeted banking sanctions, has made many countries acutely aware of their vulnerability. The lesson is straightforward: dependence on one dominant currency creates a single point of failure. At the same time, the spread of digital public infrastructure, from instant payment systems to identity platforms, has made it technically easier to imagine alternatives to legacy arrangements. Together, these forces have encouraged a slow, cautious diversification of the global monetary landscape.
India’s response is emerging along three broad axes: gold, digital payments, and local-currency trade. The most traditional of these is the renewed emphasis on gold as a store of value in official reserves. Unlike foreign government bonds or bank deposits, physical gold held by a central bank is not someone else’s liability. It does not rely on the solvency of a foreign government, nor can it be easily frozen by unilateral action abroad.
For a country that must manage external shocks, from oil price spikes to sudden stops in capital flows, gold offers a form of insurance that is immune to the politics of any one capital.
This does not amount to a rejection of financial integration. India continues to hold a significant portion of its reserves in major currencies and to operate within the existing global architecture. But the quiet tilt towards gold signals an awareness that resilience requires diversity. For a developing economy that has experienced balance-of-payments crises, accumulating an asset that is universally recognised, tradable, and difficult to weaponise is a logical hedge.
Digital infra
The second axis is more recent and forward-looking: the construction and internationalisation of digital public infrastructure. UPI has transformed domestic payments by making real-time, low-cost transfers widely accessible. What began as a tool to deepen financial inclusion and formalise the domestic economy is now gradually acquiring an external dimension. Through linkages with other countries’ instant payment systems and pilot projects for cross-border use, India is turning a domestic public good into a source of external leverage.
The significance of this move lies not in branding, but in standards and network effects. If Indian-designed protocols for identification, authentication, and settlement can interoperate smoothly with partner countries, they reduce reliance on a handful of private, high-fee global intermediaries. They also create an ecosystem in which Indian firms, developers, and regulators gain experience in shaping rules and norms for digital financial flows, rather than merely adapting to frameworks set elsewhere.
Local currency trade
The third axis is the cautious encouragement of trade settlement and financial flows in local currencies. Experiments with rupee-denominated trade, including through special vostro arrangements with partner banks, aim to shield at least a portion of India’s external transactions from currency and sanction risks. When imports of critical commodities or exports to key partners can be settled without passing through a third-country currency, the scope for disruption narrows.
For businesses, this can mean reduced exchange-rate volatility and lower transaction costs; for the nation, it offers a modest buffer against external pressure.
These initiatives have also shaped India’s role in multilateral discussions on payments. Whether in groupings such as the G20 and BRICS or in regional forums, India has advocated interoperable, inclusive systems rather than closed blocs. It has advocated for cross-border connectivity that reduces costs for migrants and small traders, while resisting rhetoric that frames monetary issues purely as geopolitical contests.
This reflects a recognition that India’s interests lie not in amplifying great power rivalry over currencies, but in building a more plural and resilient system in which middle powers have greater room to manoeuvre.
It is important, however, to avoid misreading India’s approach as a campaign to supplant the dollar or to inaugurate a “rupee age”. The structural factors underpinning the dollar’s role — the scale and openness of US financial markets, the depth of its Treasury market, and the trust built up over decades — cannot be replicated overnight. Nor would a sudden push for internationalisation sit comfortably with India’s capital account management, which still relies on a careful balance between openness and control. A premature attempt to elevate the rupee into a reserve currency could expose the economy to destabilising inflows and outflows.
Restrained, sustainable path
India’s current path is more restrained and, arguably, more sustainable. It seeks to reduce one-sided dependence without abandoning the benefits of integration; to build buffers without advertising a grand challenge to the existing order. It is a strategy rooted in realism, acknowledging both the ongoing dominance of the dollar and the need to prepare for a world in which that dominance is less absolute.
To translate this quiet recalibration into durable influence, policy will need to keep pace with ambition. On the domestic front, the digital payments revolution must be matched by robust regulation that protects privacy, ensures cybersecurity, and guards against excessive concentration of data and market power.
On the external front, India will need clear, predictable rules for cross-border data flows, taxation of digital services, and dispute resolution, so that partners can trust the systems they are being asked to adopt.
Similarly, experiments with local-currency trade must be guided by transparent criteria and constant assessment. Not every transaction can or should be shifted away from major currencies; prudence demands that liquidity, pricing, and counterparty risk be carefully evaluated. Central bank communication will be crucial: markets and partners alike must understand that diversification is aimed at enhancing resilience, not abrupt realignment.
System shaper
The broader diplomatic task is to frame India’s moves not as a retreat into financial nationalism, but as a contribution to a more balanced global monetary order. By sharing its experience with digital public infrastructure, by supporting inclusive standard-setting, and by coordinating with other emerging economies, India can position itself as a system-shaper rather than a dissatisfied outlier. That will require patience, technical depth, and a willingness to engage in the painstaking, technocratic work that underpins any lasting change in financial architecture.
Viewed in isolation, an incremental increase in gold reserves, a new cross-border UPI linkage, or a bilateral rupee settlement arrangement may seem modest. Taken together, they constitute a coherent effort to expand India’s strategic options in an uncertain world. The centre of gravity of global finance will not shift with a single announcement or a dramatic rupture. It will move, if at all, through a series of such measured steps by multiple actors.
India’s choices suggest that it understands this. Rather than announcing the end of dollar dominance, India is building the capacity to navigate a world where monetary power is more diffuse. If pursued with discipline, this silent recalibration could leave India not just better protected, but better positioned to shape the next phase of global finance.
Yadav and Taramati are Assistant Professors of Economics, Zakir Husain Delhi College (Evening), University of Delhi
Published on November 25, 2025
