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Introduction

Amid shifting geopolitics and rising reliance on local currencies, India is intensifying efforts to globalise the rupee. Expanding rupee invoicing, reducing dependence on hard currencies, and strengthening trade–payment linkages have become central to this push, especially as RBI’s new Local Currency Settlement Systems reshape cross-border financial architecture.

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Factors Driving India’s Push for the Internationalisation of the Rupee

• Reduce Dependence on Hard Currencies: India aims to lower reliance on the US dollar for invoicing and settlement.
  Eg: RBI now promotes rupee-based trade settlement to avoid dollar-linked vulnerabilities.
• Growing Global Shift Towards Local Currencies: Geopolitical changes have increased the global appetite for non-USD settlement.
• Rising Regional Trade & Need for Payment Linkages: India wants deeper trade–payment integration with key partners.
  Eg: India–Russia trade grew from $1.5 bn (2003) to $72 bn (2024), illustrating the need for local currency options.
• Reduce Transaction Costs & Support Exporters: Rupee invoicing cuts hedging cost and exchange-rate uncertainty for exporters.
  Eg: FIEO is being urged to increase awareness among exporters about rupee settlement.
• Align with India’s Long-Term Economic Ambitions: A globally usable rupee supports India’s targets of a $30 trillion economy and $1 trillion merchandise exports.

Challenges to Internationalising the Rupee

• Limited Trade Complementarities with Key Partners: Weak value-chain integration reduces incentives to use INR.
  Eg: In India–Russia trade, 80% comprises primary goods; only 0.8% is parts/components.
• Preference for USD Invoicing: Partners choose USD to protect against INR depreciation.
  Eg: Russian exporters still invoice mainly in USD despite high bilateral trade volumes.
• Rouble or Local Currency Preference of Partners: Partner countries prefer their own currencies for better gains, limiting rupee acceptance.
• Insufficient Awareness Among Indian Exporters: Exporters lack clarity on rupee-based settlement procedures.
• Fragmented Payment Infrastructure Across Countries: Limited interoperability between payment and messaging systems slows adoption.
  Eg: India must explore compatibility with alternatives to SWIFT, like Russia’s messaging system.

How Recent RBI Measures on LCSS Strengthen Rupee Internationalisation

• Enabling Rupee-Based Trade Settlement: LCSS allows invoicing and settling trade directly in rupees.
  Eg: RBI has signed LCSS agreements with UAE, Indonesia, Mauritius, and Maldives.
• Allowing Rupee Lending to Foreign Residents: Cross-border rupee loans expand international rupee use.
  Eg: Banks can lend in INR to residents/banks in Nepal, Bhutan, and Sri Lanka.
• Linking Real-Time Payment Systems with Partners: Interconnected payment rails promote frequent rupee transactions.
  Eg: UPI–UAE linkage enables instant cross-border fund transfers.
• Reducing Dependency on SWIFT: Linking financial messaging systems improves speed and safety of settlements.
  Eg: Plan to connect India’s SFMS with UAE’s system to bypass SWIFT.
• Boosting Digital Adoption & Global Reach of UPI: Digital interfaces make INR more convenient for global use.

Conclusion

India’s journey towards rupee internationalisation hinges on stronger trade volumes, diversified value chains and robust payment connectivity. Recent LCSS arrangements mark a decisive step, but sustained diplomacy, deeper exporter awareness and wider adoption across partners will determine whether the rupee evolves into a reliable, desirable currency in global commerce.

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