The RBI has recently eased rules for settling international trade in rupees, a step analysts say could strengthen the currency’s global profile while reducing dependence on the US dollar as trade tensions with Washington intensify.
The Reserve Bank said earlier this month that banks no longer need prior approval to open special Rupee Vostro Accounts, simplifying cross-border transactions in the local currency. The measure comes as US President Donald Trump has imposed 50 percent tariffs on Indian imports and warned of further penalties if the Brics bloc pushes to weaken the dollar’s role as the world’s reserve currency.
While New Delhi has repeatedly rejected calls for de-dollarisation, the latest move signals a pragmatic attempt to insulate India from currency volatility and geopolitical risks. “India’s interest largely remains in conducting transactions in local currencies by engaging with other countries,” said Harsh Pant, professor of international relations at King’s College London.
External Affairs Minister Subrahmanyam Jaishankar has stressed that India has “no interest in undermining the dollar”, but he also underlined Delhi’s goal of promoting rupee internationalisation. Trade agreements already allow Indian banks to lend in rupees, and mechanisms for bilateral rupee settlements are expanding.
The rupee has weakened more than 3.5 percent against the dollar in the past year, making imports more expensive. Settling trade directly in rupees could reduce such risks, analysts note.
Observers say the measure is also a signal that India will not simply accept Washington’s tariff pressure. “This is the least micro signal that India will not take things lying down,” said Vivek Mishra of the Observer Research Foundation.
Despite the friction, analysts expect a broader trade settlement between India and the US sooner or later, given the depth of ties in technology, pharmaceuticals and services. “This is a temporary situation and a bump in the road,” said Russell A. Stamets, a trade adviser and partner at Circle of Counsels law firm.
Even as Brics nations debate alternatives, the dollar’s position remains firm due to a lack of credible substitutes. Dollar reserves have declined from their 1990s peak, but the currency still dominates trade invoicing and debt issuance.
“De-dollarisation has been gradual for 25 years, but a dethroning of the dollar will only happen when a truly credible alternative emerges,” said Jamus Lim, economics professor at ESSEC Business School.
For now, India appears to be balancing between safeguarding its economy against dollar fluctuations and avoiding open confrontation with Washington over the global currency system.