India pushes to expand rupee settlement with key trade partners

Core Insights - India's central bank is facilitating the use of the rupee for international transactions with free-trade partners, aiming to strengthen the local currency over time [1][3] - The Reserve Bank of India (RBI) is establishing direct reference rates for currencies like the UAE dirham and Indonesian rupiah, expanding its currency links beyond the US dollar [2][4] - Prime Minister Modi's initiative to promote the rupee in global trade is part of a broader strategy to enhance India's economic stability and reduce reliance on foreign currencies [3][4] Currency Strategy - The RBI's actions are aligned with India's goal of becoming a "developed nation" by 2047, with expectations to become the world's fourth-largest economy this year and third by 2027-28 [4] - India is pursuing a multi-currency regime for global trade settlements, which is seen as a stable option for economic transactions [4] - The rupee is currently the second-worst performing currency in Asia, impacted by significant outflows from local stocks and high US tariffs [5] Trade Agreements - India has established free-trade agreements with over a dozen countries, including recent deals with the UK, Australia, and the UAE, and is negotiating with the US, EU, and others [6][7] - The country is actively discussing rupee invoicing in its trade negotiations, indicating a strategic push for local currency use in international trade [7] Internationalization Efforts - The Indian government aims to internationalize the rupee by enhancing its usability for trade and capital transactions among neighboring countries [9] - A central bank report from 2023 outlined goals for expanding currency swap arrangements and integrating Indian payments with other nations [9] - Currently, the rupee does not rank among the top 20 global payment currencies, with the US dollar holding a dominant share [10]