"Rupee on the Rise: The Indian Currency's Potential as an International Trading Currency"

"Money makes the world go round" -

John Kander and Fred Ebb

~ Yogya Mahawar

Have you ever wondered which currency holds the most power in international trade? For decades, the US dollar has been the dominant currency in global transactions. But what happens when the currency used to make the world go round is limited to a select f ew? The US dollar's dominance in international trade has led to the creation of a global financial system that is heavily reliant on the US economy. This has given the US an undue advantage in international trade, allowing it to impose sanctions on countries that do not comply with its policies. The shift towards the Indian rupee as an international trading currency will help reduce the US dollar's dominance and create a more balanced and fair global financial system. Then why is dedollarization important? Well, for one, it reduces the risks associated with fluctuations in the value of the US dollar. In addition, it also helps to promote financial stability and reduce the power that the US wields over global finance.

Could the Indian rupee become the next big player in the world of international finance?

First, let's understand what it means to be an international trading currency. Essentially, it means that the currency is widely accepted and used for international transactions, including trade and investment.

To understand the current scenario of the rupee, let's take a closer look at the numbers;

In 2023, the Indian economy is projected to grow by 10.5%, making it one of the fastest-growing economies in the world.

As of 2023, the currency accounted for around 2% of global forex reserves, up from just 0.1% in 2010.

In September 2021, India's foreign exchange reserves stood at a record high of $642.453 billion, indicating a strong position in the global financial market. (Source: Reserve Bank of India).

The share of the Indian rupee in global currency reserves has been steadily increasing, from 0.6% in 2015 to 2.3% in 2021. (Source: International Monetary Fund)

In 2021, the Indian rupee was ranked as the 13th most traded currency in the world, with a daily average trading volume of $34 billion. (Source: Bank for International Settlements).

These numbers highlight the growing presence of the Indian Rupee in the i nternational market. In fact, in recent years, the Reserve Bank of India (RBI) has been working to promote the use of the rupee in international trade, and thanks to the efforts of the Reserve Bank of India (RBI), the Indian rupee is now emerging as a viable alternative.

The RBI's strategies include liberalizing foreign exchange regulations, signing currency swap agreements with other countries, and encouraging greater use of the rupee in cross -border transactions. One of the most significant strategies has been the signing of currency swap agreements with other countries, which allows for the exchange of currencies between two countries without having to use US dollars as an intermediary. As part of its efforts, the RBI has signed agreements with 18 countries to accept the rupee as an international trading currency. These countries include Japan, South Korea, and the UAE, among others.

So, what's the big deal with the Indian rupee becoming an international trading currency? Well, for starters, it means that more countries can now trade with India using their own currencies, rather than having to convert their currencies into US dollars first. This is a big deal because it reduces the dependence on the US dollar, which has been the primary currency for international trade for decades.

But what would this mean for India and the rest of the world? As the Indian rupee takes on the world, it's not just a matter of currencies exchanging hands, but it could also have far-reaching impacts on the Indian and global economies. The Indian rupee's internationalization means a rise in its demand, and in turn, its value, leading to a stabilizing effect on the Indian economy, a reduction in inflation, and attracting foreign investments.

However, the benefits of the rupee's internationalization aren't limited to India alone. It could usher in new opportunities for global trade and bring down transaction costs. This could create a more balanced global financial system, reducing the US dollar's influence and lessening its ability to impose its policies on other countries.

Despite the advantages, there are challenges that come with the rupee's internationalization. One of the biggest concerns is the possibility of exchange rate volatility. As the rupee is used more in international trade, its value could be subject to fluctuations in the global market. The Reserve Bank of India (RBI) will need to manage this issue carefully to ensure the rupee's value remains stable.

Another issue is the need to maintain adequate foreign exchange reserves. With increased demand, India must maintain sufficient foreign exchange reserves to meet the demand, while the RBI must balance promoting the rupee's internationalization with maintaining adequate reserves. In terms of the Indian economy, the rise of the rupee as an international trading currency could be a game-changer. By reducing the need for dollars in international transactions, India could save billions of dollars in foreign exchange costs. This could also boost India's foreign direct investment and improve its credit rating, making it easier and cheaper for the country to b orrow money.

However, for the rupee to become a truly global currency, there are still obstacles to overcome. The Indian economy is relatively closed compared to other major economies, with restrictions on foreign investment and trade. This could limit the potential fo r the rupee to be used internationally, and therefore, these restrictions need to be addressed. Despite this, the rupee's potential advantages are significant, and it's essential to work towards overcoming these challenges and ensure its continued growth.

The Reserve Bank of India's smart maneuvers and the growing embrace of the rupee by foreign nations suggest its ascension as a significant player in international finance. The rupee's acceptance as a widely -used trading currency reinforces India's positi on as an economic powerhouse. Its integration in global commerce leads towards a more equitable financial system as the world shifts from the US dollar's dominance.

In conclusion, the Indian rupee's rise as an international trading currency is a signific ant milestone for India and the global economy. With the backing of the RBI and the support of 18 countries, the rupee is on its way to becoming a major player in the global financial system. While challenges may arise, the overall impact of the rupee's rise is likely to be positive for India and for the global economy as a whole. The future looks bright for the Indian rupee, and its continued growth and development will shape India's future and its place in the world of international finance.

So, what does the future hold for the rupee? Only time will tell. However, with the RBI's continued efforts to promote the use of the rupee in international trade, it is clear that the currency is on the rise. Whether it will become a major player in the global financial system remains to be seen, but one thing is for certain - the Indian economy is on the rise, and the rupee is leading the charge.

References

Ministry of Finance, Government of India. (2016). India-Japan Currency Swap Agreement Comes into Effect.

https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RCF18022018FL.pdf

Reserve Bank of India. (2020). External Commercial Borrowings (ECB) Policy - Revised https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11737 https://www.imf.org/en/Publications/WEO/Issues/2021/03/23/world-economic-outlook-april2021

International Monetary Fund. (2021). World Economic Outlook, April 2021.