Internationalising the rupee: Way forward

Atits last policy meeting, the Reserve Bank of India (RBI) unveiled several measures to boost the rupee’s use in cross-border trade — a step towards its gradual internationalisation.

- RAJESWARI SENGUPTA

The notion that an emerging economy’s currency can gain global traction took off after the International Monetary Fund added China's renminbi (RMB) to its special drawing rights basket in 2016. Now, amid renewed geopolitical tensions involving the United States, Russia, and China, the question resurfaces: How can India meaningfully advance the rupee’s journey towards international status?

For the rupee to become an international currency, nonresidents must both want and be able to trade and invest in it. A Russian importer, for instance, should be able to pay for South African goods in rupees. Likewise, an investor in the United Kingdom (UK) should be able to buy rupee-denominated bonds or shares with ease. In these cases, foreigners — not Indians — bear the currency risk. That shift is the essence of true currency power. It’s also the “exorbitant privilege” the US dollar has long enjoyed.

The willingness and ability to use a currency globally rest on three key conditions. First, the issuing economy must have scale — measured by gross domestic product (GDP), trade flows, and volume of international transactions. China, with an $18 trillion economy, meets this bar; India, at around $4 trillion, does not yet. To build that scale, India must sustain a growth rate of 7-8 per cent annually over the coming years — a difficult but necessary condition for the rupee’s global ambitions.