India’s Currency Shift: Rupee Internationalisation and Dollar De-Risking

India is not attempting to eliminate the US dollar from its financial ecosystem. Instead, it is deliberately pursuing a “de-risking” strategy aimed at reducing excessive dependence on the dollar. The Reserve Bank of India is advancing policies that support the gradual internationalisation of the rupee, often described as “rupeefication”, to strengthen monetary resilience and limit exposure to geopolitical and economic risks linked to dollar dominance.

Domestic Confidence Building After Past Shocks

One aspect of India's strategy that receives less prominent discussion in general articles is the subtle, domestically focused objective of using de-risking from the dollar to enhance the financial sanctity and confidence in the Indian rupee (INR) within its own borders, especially in the wake of past domestic monetary policy shocks like the 2016 demonetisation.
While the immediate economic and geopolitical reasons (avoiding sanctions, reducing transaction costs, etc.) are widely covered, the less articulated consequence is:

1. The Confidence Factor in Domestic Rupee Acceptance

Promoting the rupee internationally also strengthens confidence among domestic citizens and regional neighbours. It reinforces the perception that the currency is stable, reliable and capable of supporting wider economic engagement.

2. Countering "Demonetisation Fear”

India's past decision to withdraw high-value currency notes had a significant impact on confidence in the rupee, especially in neighbouring countries like Nepal and Bhutan, which use the INR widely for daily trade. By successfully establishing Special Rupee Vostro Accounts (SRVAs) with several countries and encouraging local currency trade, the government is reinforcing confidence that the rupee is a stable, reliable, and internationally viable currency, thereby rebuilding trust that the currency's value will be protected from sudden domestic policy shifts in the future.

3. Encouraging Repatriation of Private Wealth (Beyond Official Gold)

The government's actions with official gold reserves (bringing them back from London to domestic vaults) are a visible display of sovereign control. This move also has the effect of encouraging private citizens and businesses to hold more assets in rupees and conduct business in rupees, rather than hoarding gold or seeking informal dollar hedges, by demonstrating that the national currency is secure and strategically managed against global risks.

4. Strengthening the Domestic Financial Ecosystem

Internationalisation forces India to build deeper and more robust local financial markets and payment systems (like UPI linkages with other countries). A side benefit is that this improved infrastructure further integrates the domestic informal economy into the formal financial system, which might not be a direct goal of "de-dollarisation" but is a powerful internal consequence. Despite these initiatives, the rupee remains subject to a dollar-centric global system. In 2025, the INR depreciated by around 4.7 per cent against the US dollar, its steepest annual decline in three years, underscoring why India’s approach is one of calibrated de-risking rather than abrupt de-dollarisation.

India’s Internal Political Economy Within BRICS

India’s strategy also unfolds against a broader global shift, as the US dollar’s share in global foreign exchange reserves has declined from approximately 72 per cent in 1999 to nearly 58 per cent today, signalling a gradual diversification rather than a sudden collapse of dollar dominance. A less discussed dimension of India’s engagement with BRICS is the internal political economy at work, where India maintains a cautious yet strategic balance to protect national interests, manage its complex relationship with China and reassure Western partners. This dynamic goes beyond the public narrative of promoting a multipolar world or reducing dependence on the dollar. The New Development Bank, supported by BRICS, is now preparing to issue its first rupee-denominated bond by March 2026. This development signals growing confidence in the rupee within BRICS financial frameworks and strengthens India’s efforts to expand the currency’s international presence without endorsing a common BRICS currency.

Strategic Leverage and Balancing China 

A significant and often unspoken challenge for India within BRICS is China's economic and political dominance. India relies on its democratic credentials and strategic autonomy to position itself as a counterweight to Beijing’s influence in the bloc. This approach helps maintain balance within BRICS and prevents the grouping from being shaped too heavily by any single member.

Opposing a common currency 

India has firmly rejected the creation of a common BRICS currency. This position reflects a pragmatic assessment of risks, since adopting such a system could shift dependence from the dollar to a yuan-influenced alternative and expose the economy to untested financial mechanisms.

Another important motivation behind promoting the rupee internationally is strengthening public confidence in the currency and the broader financial system, especially after past disruptions such as demonetisation. Through bilateral trade settlements in rupees, the government signals that the currency is stable, credible and managed with long-term strategic purpose.

India’s Digital Strategy and Monetary Sovereignty 

China has moved quickly to expand the digital yuan for cross-border payments, while India is developing its own Central Bank Digital Currency, the ERs, and building UPI-based payment linkages with other countries. This approach supports India’s goal of creating interoperable and inclusive digital payment systems rather than joining a framework that could be dominated by China. The strategy strengthens India’s monetary sovereignty and advances its broader digital finance agenda.

India’s push for local currency trade and digital financial systems within BRICS also aligns with its wider policy of Atmanirbhar Bharat, or self-reliant India. By diversifying supply chains and reducing dependence on highly concentrated global value networks, India aims to protect its economy from vulnerabilities exposed during recent geopolitical tensions.

Way Forward
India’s shift away from dollar dependence will continue through steady expansion of rupee trade settlement, deeper digital payment linkages and broader adoption of the E Rs. Strengthening bilateral agreements in Asia, Africa and the Middle East will support this effort.

Maintaining stable macroeconomic policies and transparent regulation will be essential for building trust in the rupee, both globally and at home. Rather than pursuing a common BRICS currency, India may focus on a diversified and resilient monetary framework that protects its economy and enhances the rupee’s international role.