Indian rupee is becoming a strong medium of payment globally

Products like crude oil, gold and defense equipment are the largest imports in India. Today, most of the oil is being imported by India from Russia, which is being paid in Rupees or Rubles. Since the announcement of “Self-reliant India”, efforts are on to manufacture defense equipment in India itself, due to which the import of defense equipment is likely to be greatly reduced. Similarly, India is importing 200 tonnes of gold from United Arab Emirates, which is also being paid in Indian Rupees. Overall, now India’s need for US dollars will start decreasing in the coming times. Also, the acceptability of rupee is increasing rapidly among many countries in the international market globally. Now there is a strong possibility that the Indian Rupee will soon be accepted globally as an international currency. In this context, first gold, followed by sterling pound and now US dollar has been accepted as international currency. But, now the Indian rupee has made strides towards becoming the next dollar in the international market.

So far, 34 countries of the world have expressed their desire to do their foreign trade with India in Indian Rupees or in their own currency. While 64 other countries, including developed countries like Italy and Germany, are taking forward their positive thinking in this regard and their discussions are also going on with India. Some countries (Russia, Mauritius, Malaysia, Sri Lanka, Singapore, Myanmar, Israel, etc.) have even opened special Rupee Vostro accounts with Indian banks for the purpose of settling their foreign trade transactions in Indian Rupees or their own currency. are taken

Earlier, with the objective of reducing the dependence on the US dollar in foreign trade, the Reserve Bank of India had given acceptance of the Indian rupee as a medium of payment in foreign trade in July 2022. Especially after the war between Russia and Ukraine, due to the economic sanctions imposed on Russia and earlier on Iran, there was a lot of difficulty in importing crude oil from the oil producing countries. Therefore, these countries had given their consent to accept the Indian Rupee as payment for crude oil. Therefore, now other countries will be able to settle foreign trade transactions with India in Indian rupees or in the currencies of these countries. India’s acceptance of Indian rupee as a payment medium in foreign trade at the international level will prove to be a game changer for India and this will not only reduce the increasing pressure on India’s foreign exchange reserves in recent times. Rather, the trade deficit can also be kept under control and this will also curb imported currency inflation. Also, the acceptance of Indian Rupee as a payment medium, in the international market, will start growing even faster.

The reasons why India had to take the decision to reduce its dependence on the US dollar are as follows. Especially due to Corona Pandemic, Russo-Ukrainian War, Rapid rise in inflation in various countries and especially due to continuous increase in interest rates by US to control it, the price of US Dollar is higher than the price of currency of other countries. growing at a much faster rate than One US dollar has become 82-83 rupees today. This means that the value of currency of other countries including India is falling. However, the currency of other countries has depreciated faster than the Indian rupee. For one, crude oil prices have risen at a very fast pace and have come down from around US$ 130 per barrel to around US$ 80-90 per barrel now. All the countries usually pay for the purchase of crude oil in the international market in US dollar only, due to which the demand for US dollar has also increased and due to which the price of US dollar has also increased. Secondly, the rate of inflation in America and other developed countries had crossed 8 percent (more than 10 percent in Britain and 9.1 percent in America), which is the highest rate of inflation in the last 40-50 years in these countries.

In order to control inflation, the interest rates are being increased continuously by these countries, due to which the returns on the bonds issued by these countries are very attractive and foreign investors are withdrawing their investment from the stock market of developing countries to the American market. increasing their investment in bonds. The foreign exchange reserves of the developing countries from which dollar investment is being withdrawn are decreasing due to which there is pressure on their own currency and the value of dollar is continuously increasing. Compared to the value of the world’s 6 largest major currencies, the value of the US dollar has increased by about 18 percent. The US dollar is being used as a reserve currency in the world and foreign trade at international level is done in US dollars, so all countries need US dollars to pay for these transactions. Also, the investment that American institutions had in the capital markets of other countries is also being pulled out by American institutions and this amount of investment is being invested in American bonds. Till about two years ago, the interest rate on US bonds was only 25 basis points, which has increased to more than 325 basis points today.

The continuous strengthening of the US dollar at the global level in this way and the falling of the currency of other countries is not good for other countries at the international level. Because, taking the example of India, a continuous fall in the value of the Indian rupee against the US dollar means that goods imported by India become costlier and India pays more US dollars. As a result, the rate of inflation is also increasing in India and it is also called imported inflation. In this way, dependence on US dollar has increased for doing foreign trade of other countries of the world including India. Although all the countries of the world have been using foreign currencies such as US Dollar, Euro and Pound to do foreign trade globally, but, US dollar still remains the most effective currency for foreign trade and that is why all over the world. There is also the kingdom of America.

The Indian Rupee has also depreciated by about 9 per cent in the last one year against the US Dollar. Foreign portfolio investors have pulled out more than Rs 230,000 crore from India during the last 18 months due to the continuous increase in interest rates in the US and other developed countries. Secondly, India is among the largest importer of crude oil in the world. India imports more than 80 percent of its oil consumption. In the recent times, due to the increase in economic activities in India, the demand for crude oil has increased very rapidly. Therefore, India has needed US dollar to pay the price of crude oil and due to increase in its demand, the price of US dollar is also increasing continuously in the international market. Not only the Indian Rupee, but the currency of almost all the countries of the world has seen a decrease in its value. In fact other countries’ currencies have depreciated more rapidly than the Indian Rupee. From this point of view, the value of Indian Rupee is increasing in comparison to the currencies of other countries (except US Dollar). In more recent times, the value of the Euro has fallen and has now come down to the value of the US Dollar. The main reason for this is also that the investors are taking out their investments from Eurozone and turning them towards America. In the year 2021, the price of one euro was around 90 rupees, which has now come down to around 87 rupees. Thus there has been an improvement in the value of the rupee against the euro. Similarly, the cost of one Japanese yen which was Rs 0.70 in the year 2021 has become Rs 0.61 today and the cost of one pound sterling which was Rs 101 in the year 2021 has now come down to Rs 98 and the cost of one French franc in the year 2021 13.60 which has now come down to Rs.13.2. In this way, the value of Indian Rupee has increased in the international market in comparison to the above four main currencies but has decreased in comparison to US Dollar only due to the reasons mentioned above.

– Prahlad Sabnani

retired deputy general manager

state Bank of India