Can India push to settle international trade in Rupees


Apurva Dhamankar

2/22/20232 min read

In December 2022, India had a trade settlement with Russia. What made this trade settlement unusual was the fact that it was settled using Indian rupees rather than the traditional US Dollars. This was all part of the ‘International Settlement of Trade in Indian Rupee’ a mechanism set up by the Reserve Bank of India in July 2022.

Over a year ago, a report by the Reserve Bank of India on finance and currency mentioned that the internationalization of the Indian rupee would be inevitable. Internationalization means that domestic currency can be used freely by residents and non-residents and also can be used as a reserve currency for all forms of international trade.

Today, there are around 8 major currencies that are recognized by the International monetary fund as reserve currencies, the US dollar having a maximum share of over 60% of global foreign exchange reserves.

The decision to push for India to settle its trade through the Indian rupee was because of 2 major reasons. The first was the Russia-Ukraine war resulting in Russia being hit with sanctions affecting its ability to use any of the reserve currencies which severely affected it. There were severe trade restrictions on goods and services originating in Russia. India being a trade partner of Russia for crude oil managed to get the same from Russia at a discounted rate.

The second and more important reason was India’s dwindling foreign reserves. Since September 2021 when the reserves were at an all-time high of $642.45 billion, they have been constantly declining and as of January 2023, the foreign reserves were $572 billion which was a 5-month high. The push to use the Indian rupee as a medium of exchange for international trade was to curtail the outflow of the reserve currency.

Currently, apart from Russia, India does some form of international trade in Indian rupees with Sri Lanka and Iran. Ongoing negotiations with Saudi Arabia and UAE for rupee-dirham payment mechanism. Around 3 dozen counties are interested in trade settlements with ongoing negotiations with the central banks of Tajikistan, Cuba, Luxembourg, and Sudan.

While there is a push for the internationalization of the rupee there are some issues that follow:

1. For countries like UK, Turkey, and Bangladesh whose currencies have depreciated against the dollar by more than 10% a fixed exchange rate would be required which would be hard to negotiate.

2. The rupee needs to have better price stability.

3. Bilateral trade agreements tend to favor the Dollar as the medium of exchange.

4. Imports and exports need to increase by a large amount which would mean reducing tariffs which could harm domestic producers.

5. The service sector which deals with countries like US and Europe would be severely impacted.

To summarize while it is not India’s goal to replace or challenge the dollar as the world’s reserve currency the hope is that through intense and productive negotiations the rupee can be used for trade thereby improving our foreign reserves and giving India a much larger voice in Trade negotiations.

Thank you.


Jeremy Dias,

Kautilya, IBS Mumbai.

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