Time to Push for Rupee Internationalisation

UPSC Syllabus: Gs Paper 3- Indian economy

Introduction

The rupee nearing the 95 per dollar mark shows rising external pressure and highlights the need to increase global demand for the currency. At the same time, the use of rupee in foreign trade settlement has started in a limited way over the last four years. Global changes in payments and reserves now create a favourable situation to push rupee internationalisation.

Global Shift Towards De-dollarisation

1. Impact of Geopolitical Events: The Russia–Ukraine War led to Russia’s removal from SWIFT (Society for Worldwide Interbank Financial Telecommunication), forcing countries to rethink global payment dependence. The US–Israel–Iran conflict is further pushing countries to secure energy supplies and reduce reliance on the dollar.
2. Declining Dominance of the Dollar: The share of the dollar in global reserves fell from 64% in 2017 to 56.7% in 2025, showing a steady decline. At the same time, its share in global payments remains high at around 50%, due to its role as a reference currency.
3. Rise of Alternative Reserve Assets: The share of other currencies in reserves increased from 2.5% to 6.13%, showing diversification. Gold reserves also rose sharply from 10% in 2015 to 23%, emerging as a strong alternative.
4. Decline in Foreign Investment in US Assets: Foreign holdings of US treasury securities declined from nearly 50% in 2014 to 32% ($9 trillion). This shows reduced confidence in dollar-based assets.

India’s Policy Push for Rupee Internationalisation

1. Regulatory Measures by RBI: The Reserve Bank of India allowed rupee invoicing and settlement of foreign trade in July 2022. In December 2023, it expanded this to allow cross-border trade settlement in rupee and local currencies with all partners.
2. Bilateral Trade Arrangements: India signed agreements with UAE, Indonesia, and Maldives to settle trade in local currencies. Trade with Russia, including oil and defence supplies, has been settled in rupee since 2022.
3. Institutional Support through Banking Channels: As of February 2025, 156 Special Rupee Vostro Accounts were opened by 123 foreign banks across 30 countries. Around 26 Indian banks are involved in facilitating such transactions.
4. Initial Progress in Rupee Usage: Rupee invoicing reached 6.18% of exports (₹2.64 lakh crore) between April–January FY26. It remained around 5.8–5.9% since FY24, while imports invoiced in rupee stood at 4.69%.

Issues and Challenges Remain

1. Gap Between Invoicing and Settlement: Rupee settlement remains low, with 2.76% in exports and 2.32% in imports, much below invoicing levels. This shows a clear gap between intent and actual usage.
2. Dependence on Dollar-Based Systems: The dominance of SWIFT makes global transactions dependent on Western-controlled systems. Countries excluded from it face serious constraints in international trade.
3. Structural Advantage of the Dollar: The dollar’s role as a reference currency in third-party trade increases its use in global invoicing. This makes it difficult for other currencies, including the rupee, to expand quickly.
4. Emerging Systems with Limitations: Alternatives like BRICS Pay face concerns such as dominance of certain countries. This limits trust and wider acceptance among participants.

Way Forward

1. Promote Bilateral Local Currency Trade: Increasing settlement of trade in rupee and local currencies can reduce dependence on the dollar. This requires deeper agreements with trading partners.
2. Develop Alternative Payment Systems: Systems like CIPS and SPFS can be linked to create alternatives to SWIFT. Interoperability among these systems can improve efficiency.
3. Leverage Digital Currency Platforms: Central Bank Digital Currencies offer new channels for cross-border payments. Around 13 cross-border CBDC projects, including Project mBridge, are already under development.
4. Utilise Global Sentiment Against Dollar: Growing dissatisfaction with US policies and sanctions creates a favourable environment. Countries are now more open to reducing dollar dependence and adopting alternatives.

Conclusion

Global shifts, declining dollar dominance, and geopolitical tensions have created a strong case for rupee internationalisation. India has made policy progress, but settlement gaps remain. Expanding trade in rupee, building alternative systems, and using global sentiment can strengthen its role. The present moment offers a clear opportunity that must be used effectively.

Question for practice:

Examine how global de-dollarisation trends and India’s policy measures are shaping the prospects of rupee internationalisation, and discuss the key challenges that still remain.

Source: Businessline