<p>The Indian rupee’s recent tumble – hovering around 85 to the US dollar in early 2025 – has again turned a spotlight on a persistent vulnerability: India’s outsized dependence on the American currency. This isn’t just a matter of numbers; it’s about how deeply India’s economy is tethered to forces outside its control. Over the last year and a half, the rupee has lost over 10% of its value against the greenback, a clear sign of the exposure India faces to global shifts that it can barely influence.</p>.<p>The reality is that the US dollar rules India’s foreign exchange ecosystem. Roughly 85% of trade invoices here are denominated in dollars. The Reserve Bank of India (RBI) keeps about 60% of its $650 billion forex kitty in US currency. And when it comes to borrowing from abroad, nearly 53.4% of India’s external debt is dollar-based. Even foreign portfolio investments mostly flow in through dollar channels. Put simply, when the US Federal Reserve raises interest rates, or when the dollar strengthens, India feels the heat immediately – import costs rise, inflation inches up, and credit tightens.</p>.Why we yearn for war.<p>The effects are felt across the economy. Take crude oil, for example. India imports more than 80% of its oil needs. So, when the rupee weakens, oil prices in rupee terms shoot up, adding pressure on the current account deficit, which narrowed to 0.7% of GDP in FY24. Inflation decreased to 3.16% in April 2025, but currency volatility remains a concern for economic stability.</p>.<p>Against this backdrop, the idea of “de-dollarising” India’s economy gains fresh momentum. The argument is simple: reducing reliance on the dollar could cushion India against wild swings in global markets, give it more control over its finances, and boost economic sovereignty. Countries such as China and Russia have tried moving away from the dollar by making deals to trade in their own currencies and encouraging local currency usage in trade.</p>.<p>But let’s not kid ourselves – this is a tall order. The US dollar is entrenched as the world’s dominant currency. It makes up nearly 60% of global foreign exchange reserves and remains the go-to currency for international trade. Compare that to the Indian rupee, which accounts for less than 1% of global payments (according to SWIFT). India’s financial markets simply aren’t deep or liquid enough to make the rupee a global currency anytime soon. The rupee’s capital account isn’t fully open, and offshore rupee trading hubs are just starting to take shape.</p>.<p>There are also geopolitical roadblocks. The dollar’s supremacy is reinforced by sanctions and global financial frameworks. Attempting to reduce dollar use involves diplomatic tightropes and risks. Indian companies, used to the safety of dollar transactions, would need to rethink risk management if forced to switch.</p>.<p><strong>Road to stability</strong></p>.<p>Still, India has some cards to play. Expanding currency swap deals with countries such as Japan and the UAE can encourage more trade in local currencies. Pushing for rupee invoicing in exports and imports with friendly countries – especially in Asia and Africa – can boost rupee demand. The RBI should also spread its forex reserves more evenly across currencies like the euro and yen to lower dollar risk.</p>.<p>On the financial side, infrastructure matters. The Gujarat International Financial Services Centre (IFSC) can be nurtured into a robust offshore rupee trading hub, drawing foreign investors and improving liquidity. Opening up the rupee further on the capital account will be crucial to support this internationalisation drive. Diplomatically, India must work with BRICS, the G20, and ASEAN to create a multilateral push against dollar dominance. It’s a global game and collective action is needed.</p>.<p>India’s digital payments landscape can also, quietly, support a shift away from the dollar. Platforms such as UPI, already linked with nations such as Singapore and the UAE, open doors for rupee-based cross-border exchanges, particularly in services. At the same time, the RBI’s move towards a digital rupee could gradually lessen the need for dollar-based clearance systems. If this digital currency gains traction and works seamlessly with global networks, it could lower transaction costs, increase transparency, and offer a reliable alternative in select international trade and remittance channels.</p>.<p>De-dollarisation is essential, but it won’t happen overnight. India must pursue a steady and strategic course – implementing reforms, building markets, and engaging the world diplomatically. Without such moves, the rupee will remain vulnerable to the dollar’s ups and downs, putting India’s growth and stability at risk.</p>.<p>(Taru and Manu are assistant professors of economics at Christ <br>University and Alliance University, respectively)</p>
<p>The Indian rupee’s recent tumble – hovering around 85 to the US dollar in early 2025 – has again turned a spotlight on a persistent vulnerability: India’s outsized dependence on the American currency. This isn’t just a matter of numbers; it’s about how deeply India’s economy is tethered to forces outside its control. Over the last year and a half, the rupee has lost over 10% of its value against the greenback, a clear sign of the exposure India faces to global shifts that it can barely influence.</p>.<p>The reality is that the US dollar rules India’s foreign exchange ecosystem. Roughly 85% of trade invoices here are denominated in dollars. The Reserve Bank of India (RBI) keeps about 60% of its $650 billion forex kitty in US currency. And when it comes to borrowing from abroad, nearly 53.4% of India’s external debt is dollar-based. Even foreign portfolio investments mostly flow in through dollar channels. Put simply, when the US Federal Reserve raises interest rates, or when the dollar strengthens, India feels the heat immediately – import costs rise, inflation inches up, and credit tightens.</p>.Why we yearn for war.<p>The effects are felt across the economy. Take crude oil, for example. India imports more than 80% of its oil needs. So, when the rupee weakens, oil prices in rupee terms shoot up, adding pressure on the current account deficit, which narrowed to 0.7% of GDP in FY24. Inflation decreased to 3.16% in April 2025, but currency volatility remains a concern for economic stability.</p>.<p>Against this backdrop, the idea of “de-dollarising” India’s economy gains fresh momentum. The argument is simple: reducing reliance on the dollar could cushion India against wild swings in global markets, give it more control over its finances, and boost economic sovereignty. Countries such as China and Russia have tried moving away from the dollar by making deals to trade in their own currencies and encouraging local currency usage in trade.</p>.<p>But let’s not kid ourselves – this is a tall order. The US dollar is entrenched as the world’s dominant currency. It makes up nearly 60% of global foreign exchange reserves and remains the go-to currency for international trade. Compare that to the Indian rupee, which accounts for less than 1% of global payments (according to SWIFT). India’s financial markets simply aren’t deep or liquid enough to make the rupee a global currency anytime soon. The rupee’s capital account isn’t fully open, and offshore rupee trading hubs are just starting to take shape.</p>.<p>There are also geopolitical roadblocks. The dollar’s supremacy is reinforced by sanctions and global financial frameworks. Attempting to reduce dollar use involves diplomatic tightropes and risks. Indian companies, used to the safety of dollar transactions, would need to rethink risk management if forced to switch.</p>.<p><strong>Road to stability</strong></p>.<p>Still, India has some cards to play. Expanding currency swap deals with countries such as Japan and the UAE can encourage more trade in local currencies. Pushing for rupee invoicing in exports and imports with friendly countries – especially in Asia and Africa – can boost rupee demand. The RBI should also spread its forex reserves more evenly across currencies like the euro and yen to lower dollar risk.</p>.<p>On the financial side, infrastructure matters. The Gujarat International Financial Services Centre (IFSC) can be nurtured into a robust offshore rupee trading hub, drawing foreign investors and improving liquidity. Opening up the rupee further on the capital account will be crucial to support this internationalisation drive. Diplomatically, India must work with BRICS, the G20, and ASEAN to create a multilateral push against dollar dominance. It’s a global game and collective action is needed.</p>.<p>India’s digital payments landscape can also, quietly, support a shift away from the dollar. Platforms such as UPI, already linked with nations such as Singapore and the UAE, open doors for rupee-based cross-border exchanges, particularly in services. At the same time, the RBI’s move towards a digital rupee could gradually lessen the need for dollar-based clearance systems. If this digital currency gains traction and works seamlessly with global networks, it could lower transaction costs, increase transparency, and offer a reliable alternative in select international trade and remittance channels.</p>.<p>De-dollarisation is essential, but it won’t happen overnight. India must pursue a steady and strategic course – implementing reforms, building markets, and engaging the world diplomatically. Without such moves, the rupee will remain vulnerable to the dollar’s ups and downs, putting India’s growth and stability at risk.</p>.<p>(Taru and Manu are assistant professors of economics at Christ <br>University and Alliance University, respectively)</p>
