Recent Deals with UAE and Singapore Signal Potential, but Significant Hurdles Remain on the Path to Global Acceptance
The recent celebration of the Reserve Bank of India’s 90th anniversary has drawn attention to the nation’s efforts to enhance the international standing of the rupee. While steps have been taken to bolster its acceptance on the global stage, challenges persist as India seeks to assert the rupee as a viable international currency.
Prime Minister Narendra Modi has emphasized the importance of making the rupee more accessible and acceptable worldwide, particularly as India’s role in global growth and trade is expected to expand significantly in the coming years. However, the dominance of the US dollar in global trade remains a formidable barrier to the widespread adoption of the rupee.
Recent developments, such as India’s inaugural payment to the United Arab Emirates (UAE) in rupees for crude oil purchases, mark positive strides towards rupee internationalisation. Yet, significant reliance on the dollar persists, particularly for crucial imports such as chemicals, coal, and pharmaceuticals.
While the rupee is fully convertible in the current account, efforts to promote its use in international trade have encountered challenges, as seen in difficulties trading with countries like Russia. The Reserve Bank of India has taken measures to facilitate bilateral trade in local currencies, but achieving broader acceptance requires further institutional and policy advancements.
The internationalisation of the rupee carries potential benefits for Indian businesses, including reduced currency risks and decreased reliance on foreign exchange reserves. Renowned banker Uday Kotak has underscored the importance of a strong currency in India’s aspirations for global economic prominence, highlighting the need for institutional excellence and discipline to achieve reserve currency status.
Looking ahead, the path to rupee internationalisation remains complex. While recent deals with countries like Singapore and the UAE, along with initiatives such as Special Rupee Vostro Accounts (SRVAs), demonstrate progress, substantial efforts are needed to overcome existing barriers. India’s commitment to democratic principles and sound economic policies provides a foundation for advancement, but the pace of progress amid current political dynamics, particularly during an election year, remains uncertain.
