India has opened a new front in the global currency landscape by allowing Brics nations to settle all trade in Indian rupees, a move seen as a potential challenge to the U.S. dollar’s dominance in world markets.
In a circular issued this week, the Reserve Bank of India (RBI) instructed domestic banks to facilitate rupee-based transactions for exporters and importers from Brics and other partner countries through special vostro accounts. This is the first time New Delhi has enabled rupee settlements at such scale, removing the need for prior central bank approval.
A vostro account allows an Indian bank to hold rupee balances on behalf of a foreign bank, enabling overseas buyers to pay for Indian goods in rupees and use the surplus to reinvest in Indian assets or fund imports from India. Analysts say this framework will help countries such as Russia bypass the dollar for commodity trade, particularly oil, while reducing conversion costs and mitigating the impact of Western sanctions that restrict access to the SWIFT system.
The announcement comes days after former U.S. President Donald Trump imposed a 50 percent tariff on Indian exports, prompting renewed calls within India to reduce reliance on the dollar. Prime Minister Narendra Modi’s government has cast the policy as both a shield against tariff shocks and a broader step toward strengthening the rupee’s international role.
India had previously tested this model in energy trade with Russia, where oil purchases were settled in rupees. Under the new guidelines, surplus balances can also be invested in government securities, equities, bonds, or infrastructure projects. RBI officials indicated that rupee holdings could even be used for third-country trade, potentially widening the system’s reach.
India’s trade data underlines the scale of the shift. In 2023–24, the country exported $451 billion worth of goods and imported $677 billion, with nearly 85 percent of transactions settled in dollars. Experts estimate that if just 10–15 percent of trade is conducted in rupees, the change could generate more than $100 billion in annual flows, significantly raising the rupee’s global profile.
The policy dovetails with the Brics bloc’s long-standing efforts to reduce reliance on the dollar. While a common Brics currency remains distant, India’s rupee settlement framework is viewed as a pragmatic alternative. “The world is seeing the emergence of a multi-polar trade system,” said Ajay Sahai, director general of the Federation of Indian Export Organisations. “By internationalising the rupee, India is positioning itself to benefit from shifting supply chains while reducing transaction costs for exporters and importers.”
Challenges remain, however. Many global firms prefer the dollar for its liquidity and universal acceptance, while India’s limited capital account convertibility constrains the rupee’s appeal. Still, analysts argue the new framework signals India’s ambition to internationalise its currency and strengthen its role in South-South trade.
As China promotes the yuan and Brazil encourages use of the real in trade, India’s push reflects a broader shift. While the dollar still accounts for nearly 58 percent of global reserves, the Brics nations are making clear that alternatives are gaining traction.
