India wants to take the rupee global…at least, regionally
To gauge the Trump effect on the wider world, consider this bombshell news from India: It wants to internationalise the rupee and plug its use in trade, especially in its own region, the near abroad (ie countries like the UAE and Indonesia) as well as in the 10-nation BRICS group (which also includes the UAE and Indonesia).
India’s central bank, the Reserve Bank of India, is reportedly engaged in the effort to establish direct conversion rates for the rupee and the Emirati dirham and Indonesian rupiah. Thus far, the rupee has direct conversion rates with the dollar, euro, pound and yen.
What does this really mean? Especially in light of China’s relatively paltry successes in internationalising the renminbi (RMB). In 2018, China launched crude oil futures contracts priced in RMB, the first Chinese currency-denominated futures available for foreigners to directly buy and sell. The massive Belt and Road Initiative has been rolled out right round the world. And China, of course, is a major trading nation. Despite pushing its currency pretty hard, China’s RMB still accounts for less than five per cent of global reserves, compared to the dollar’s 59 per cent.
India could probably expect worse considering the rupee is not fully convertible, has a tiny share of the global forex market and India’s international trading footprint is way smaller than China’s.
But perhaps India is not really trying to set up the rupee to rival the dollar? Some analysts say that this is a sort of benign de-dollarisation effort with India trying to ensure its trade networks are less affected by shocks such as US sanctions, US Federal Reserve rate hikes and dollar shortages.
Perhaps India’s real short-term goal is to be the South African rand or the Australian dollar of South Asia and embed its currency as a regional reserve?
South Africa’s rand and Australia’s dollar are anchors in their respective backyards but no one regards either as a likely candidate for global reserve currency.
That may be more possible for the Indian rupee. However, even this more modest status would take some doing.
