India is rolling out long-term plans to reduce dependence on the dollar, as punishing US tariffs weigh on the nation’s currency and trade prospects.
The central bank this week announced fresh measures to push global acceptance of the rupee, similar to efforts by China and other regional peers to globalize their currencies amid trade disruptions. The path to internationalize the rupee, however, is fraught with challenges, according to experts.
What’s happening in India’s currency market?
India’s rupee is the worst performer in Asia this year, dragged down by the highest US tariffs in the continent. Despite a softer dollar, the rupee has shed 3.6% against the greenback. That weakness poses inflation risks for the fuel-importing nation and pushes global investors away.
Why did the Reserve Bank of India make these changes?
To ease banks’ transaction costs and spur inflows, the RBI announced new reference rates for major trading partners such as the United Arab Emirates and Indonesia. It also expanded the list of assets that holders of some overseas accounts can buy, and let banks lend the local currency in three neighboring countries.
By adding new reference rates, the RBI hopes to enable direct pricing of trades in rupees and the currencies of partner countries, instead of routing them through the dollar, said R. Gurumurthy, a retired regional director at the RBI.
This is important because when India trades with other countries, transactions are typically channeled via the dollar, adding a costly layer, he said.
The timing of the measures could be a signal that the central bank is keen on bolstering sentiment for the rupee and slowing the pace of its depreciation, said Abhishek Upadhyay, an economist at ICICI Securities Primary Dealership Ltd.
What are the challenges to the process?
The authorities would have to play a larger role to bring down dollar dependence in transactions with partner countries, according to experts.
Pushing up the usage of the rupee at a global scale would eventually require removal of restrictions on the convertibility of the currency, said Gaura Sen Gupta, chief economist at IDFC First Bank.
Central banks may also be called upon to coordinate market interventions to avoid volatility in new currency pairs, Gurumurthy said. “Publishing a reference rate does not by itself create liquidity and banks will only trade actively if there is sufficient demand, hedging tools, and confidence in market stability.”
Is this more bad news for the dollar?
Breaking the dollar’s dominance won’t be easy. The global trading landscape shows little signs of moving away from the dollar, at least for now. The US currency was on one side of 89% of foreign-exchange trades worldwide in 2025, up from 88% in 2022, according to the latest triennial survey from the Bank for International Settlements.
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