Introduction

Can the Indian Rupee become a global currency? This question has been debated by economists and policymakers for years. While some argue that the Rupee requires export surpluses and full convertibility to establish itself globally, others believe that it can become a global currency through strategic and selective internationalization. This article delves into the challenges and opportunities facing the Indian Rupee in its quest to gain global status, discussing the role of export surpluses, bilateral trade practices, and the necessity of expanding trade relationships.

Export Surpluses and Convertibility

The traditional belief has been that for a currency to become a global currency, it must have substantial export surpluses. These surpluses serve as the backing for the currency, fostering confidence among international investors and traders. Additionally, full convertibility of the currency is often seen as a prerequisite for it to be widely accepted in international transactions.
However, these expectations might be overly optimistic. While export surpluses are indeed crucial, the reality is more nuanced. Countries like India face significant challenges in achieving and sustaining such surpluses. For instance, if a country buys oil using its own currency, as India did from Russia during peacetime, the resulting currency might not be well-utilized in international trade. This can lead to India facing the following issues:

Where to Expend: Russia might not have suitable investment opportunities in India due to current geopolitical tensions and economic challenges. Investment in India: With the ongoing war, investment from countries like Russia in India is unlikely to be the priority. Trade with Other Nations: India does not offer significant trade opportunities for countries like Russia. This limits the potential for the Rupee to be widely used in international trade.

One solution to these challenges could be the establishment of a network of currencies that are mutually beneficial. By making the Rupee a currency for bilateral trades, countries can use it to purchase goods and services from each other. This can help in building a more robust international trade network and increasing the usage of the Rupee.

Bilateral Trade and Internationalization

The Indian Rupee can gain global status through strategic internationalization. This involves starting trade relationships with countries that meet certain criteria:

SAARC Countries: Essential to begin trade with South Asian Association for Regional Cooperation (SAARC) countries. India can push for trade agreements with Sri Lanka and Bangladesh in addition to Nepal, Bhutan, and Zimbabwe. BIMSTEC Countries: Extend trade collaboration to the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) countries, including Thailand, ensuring that India can trade with other SAARC members through the Rupee. India-Diaspora Dominated Countries: Expand trade to countries with a significant Indian diaspora, such as Mauritius, Suriname, and Southeast Asian nations where India enjoys a trade surplus or a minimal deficit.

By focusing on these regions, India can gradually increase the usage of the Rupee in international trade. This will help in building a strong foundation for the Rupee's internationalization. However, it's important to note that this process will be gradual and may take many years.

The Future of the Indian Rupee

While the Indian Rupee is already internationally recognized, the scale of its usage is currently limited to a few countries. To become a global currency, the Rupee must expand its reach and acceptance. This can be achieved through strategic trade agreements and encouraging the use of the Rupee in international transactions. In the long term, if India becomes a developed country with a significant GDP, it might be more feasible for the Rupee to become a global currency.

Until then, it's crucial for India to focus on building and maintaining these strategic trade relationships. With consistent efforts and strategic policies, the Indian Rupee can gradually become a more significant player in the international monetary system.