No USD-INR Comparison; RBI Governor Urges India to Look Beyond

India’s central bank chief, Sanjay Malhotra, has called for a decisive shift in the way India engages with global financial markets. Speaking at the 25th anniversary of the Clearing Corporation of India (CCIL) in Mumbai, the RBI Governor emphasised the need to internationalise the rupee by moving beyond the conventional USD–INR currency corridor. 

His remarks come at a time when global trade is increasingly seeking alternatives to dollar dominance, especially in emerging markets.

Why Go Beyond the USD–INR Corridor?

For decades, the US dollar has been the anchor for international trade and settlement. India’s forex transactions are no exception, with the majority of deals routed through the USD–INR corridor. This practice, while convenient, also creates vulnerabilities: volatility in the dollar impacts Indian businesses, and overdependence restricts flexibility in bilateral trade.

By diversifying settlement corridors to include other currencies such as the euro, yen, pound, or even local Asian currencies, India could reduce dollar dependency. This aligns with the larger policy goal of rupee internationalisation, allowing trade settlements directly in INR. Such a move would also strengthen India’s bargaining power in cross-border negotiations.

India’s Position in the Global Currency Market

India has made strides in financial market infrastructure that rival major economies. The Governor highlighted that the country is the only major economy where government securities and repository transactions occur on a fully anonymous electronic platform. Trade information is disseminated in real time, and settlements are seamlessly handled through a central counterparty, reducing risk.

This puts India in a strong position to expand beyond the USD corridor. To understand the scale, let us look at how India’s forex reserves and trade currency composition compare globally.
 

This table shows India still relies heavily on USD, compared to countries like China that are actively promoting the yuan in international trade. Diversifying will help India follow a similar path, reducing exposure to dollar volatility.

The Case for Rupee Internationalisation

Rupee internationalisation means making INR more widely accepted in global trade and finance. India has already launched rupee settlement mechanisms for trade with Russia, Sri Lanka, and Mauritius. By strengthening such initiatives, India could position the rupee as a stable settlement currency for South Asia, Africa, and even parts of the Middle East.

Some benefits include:

• Reduced forex risk for Indian importers and exporters.
   
• Lower transaction costs compared to USD conversions.
   
• Greater stability for India’s current account.
   
• A stronger global financial identity for the rupee.
   

However, challenges remain. For INR to be globally accepted, India must deepen its bond markets, relax capital controls, and ensure macroeconomic stability.

Opportunities for Retail Investors

Another key point raised by the RBI Governor was the need for CCIL to strengthen offerings for retail investors. Traditionally, foreign exchange and government securities markets have been dominated by institutional players. Allowing retail investors greater participation can democratise access to global financial instruments.

Already, India has taken steps such as RBI Retail Direct, enabling individuals to invest in government securities. Expanding this to forex trading and non-USD currency pairs could give everyday investors new opportunities to diversify their portfolios.
 

This shows there is a long runway for India to expand retail participation in global markets, provided regulatory and technological frameworks are enhanced.

Comparing India’s Rupee Push with China’s Yuan Strategy

India’s vision of rupee internationalisation has parallels with China’s push to globalise the yuan (CNY). China has actively promoted yuan settlements, especially since the Belt and Road Initiative (BRI), by signing bilateral currency swap agreements and setting up offshore clearing banks. The yuan’s inclusion in the IMF’s Special Drawing Rights (SDR) basket in 2016 gave it further legitimacy.

In contrast, India’s approach is more gradual and trade-focused. Instead of pursuing global currency status immediately, India is focusing on bilateral rupee settlement arrangements with trade partners. While China has leveraged its vast trade surpluses and centralised financial system, India is relying on its robust payment infrastructure (like UPI and CCIL systems) and democratic financial reforms.
 

While China is years ahead in terms of global recognition, India’s transparent, tech-driven systems could give INR a unique advantage as a trusted settlement currency for emerging markets.

Historical Context: India’s Early Adoption

The Governor also noted that India had set up its trade repository for OTC derivatives even before the G20 recommended such mechanisms globally. This proactive approach has allowed India to maintain transparency and resilience in its financial markets.

Such leadership gives India a platform to push for wider rupee use in global trade, much like China’s push for the yuan through initiatives such as the Belt and Road. If India aligns trade corridors with friendly nations and strengthens financial infrastructure, the rupee could gradually emerge as a credible settlement currency.

Conclusion

RBI Governor Sanjay Malhotra’s call to move beyond the USD–INR corridor is not just a policy suggestion, it is a vision for India’s economic future. With its robust infrastructure, growing global trade links, and a stable macroeconomic outlook, India has the capacity to diversify its currency corridors and elevate the rupee on the world stage.

The comparison with China’s yuan strategy highlights that while India may be taking a slower path, it is building on a foundation of transparency, innovation, and gradual global acceptance.

For retail investors, this could mean new opportunities in forex and government securities. For businesses, it could mean reduced exposure to dollar fluctuations. And for India as a whole, it could mean greater financial sovereignty.

The journey from a dollar-dependent economy to a rupee-driven global trade partner will not be easy, but with strategic reforms and market deepening, India can position itself alongside the world’s leading currencies.

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