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The rupee as regional currency

Reserve Bank’s move to enable international trade in INR is a step towards regaining Indian primacy in the Indian Ocean region that the Indian Rupee once enjoyed. It is also an essential financial dimension that will add heft to India’s strategic SAGAR policy.

BY Amit Bhandari

The Reserve Bank of India on Monday, July 11^th announced an arrangement that would enable traders to invoice, pay and settle imports/exports in the Indian Rupee [1]. While this move may have been dictated by India’s burgeoning trade with Russia post the Ukraine crisis, it may also be a small step in regaining the central role that the INR used to play in the Indian Ocean region prior to 1947.

One hundred years ago, the Indian rupee was the currency of undivided India under the British Raj, and several other countries either used the Indian rupee or its close derivatives like the Burmese Kyat and the Saudi Riyal, as money. From 1835 to 1939, the Indian rupee was a silver coin of uniform weight (11.66 grams) and purity (91.7%). Ceylon (now Sri Lanka) began using the Indian rupee as currency in 1836. In 1853, Burma brought out a silver Kyat, identical to the Indian rupee in size and weight. From 1881 onward, the Portuguese possessions in India (Goa, Daman and Diu) used the Rupia, which was not only equal to the British Indian rupee in name, size, purity and design but was also minted at the Calcutta Mint. During the 1890s, the colonial empires of Germany, Italy and Britain in Africa – which include present-day Tanzania, Somalia and Kenya – had currencies called the Rupie, Rupia and Rupee respectively (see picture). These coins were also the same as the Indian rupee.

Rupee Coins British India One Rupee, Indo-Portuguese Uma Rupia, German East Africa Eine Rupie, Burmese Kyat

The use of silver for coinage was dropped during the 1940s in most of the world and in India too, due to the economic pressure of World War II. Newly independent countries went in for their own fiat currencies.

Saudi Arabia adopted a new Riyal in 1935, similar to the INR in weight and silver content, for ease of trade. Its neighbours, the Trucial States (now the United Arab Emirates), Oman, Kuwait, Bahrain and Yemen used the Indian rupee as currency. These countries continued to use the rupee as currency even after 1947: the Reserve Bank of India used to print a special banknote, the Gulf Rupee[2] (see picture), for use in these countries. After the multiple rupee devaluations of the 1960s, these countries dropped the rupee and adopted their own currencies.

Gulf Rupee banknote

India was the region’s largest economy in the 1900s, and it made sense for smaller economies to have a similar currency for ease of trade. As India regains its economic stature a century later, its currency will reflect that. The timing is right. With the increasing weaponisation of the U.S. dollar amidst the Ukraine crisis and political and economic unrest in India’s neighbourhood, countries in India’s sphere of influence can be insulated from such external shocks as are being witnessed in Sri Lanka and Pakistan. There is already significant formal and informal cross-border trade, and the Indian rupee is the defacto hard currency of the region.

This will encourage the desired economic integration of South Asia and the Indian Ocean. It will also make India less vulnerable to sanctions on economic partners such as Russia and Iran.

Detailing Western sanctions against Russia

The West is using the Ukraine crisis as a watershed moment to weaponize sanctions in a volatile global setting. This infographic shows the extent and scale of Western sanctions against Russia, both public and private, across different sectors, and in a coordinated manner.

The Russian invasion of Ukraine of 2022 is a major geopolitical development in the post-Cold War era. Western allies, led by the United States, have taken the path of “punishing” Russia by imposing severe sanctions and other restrictive measures across different sectors in a coordinated manner. Though Russia was subject to Western sanctions when it annexed eastern Ukraine in 2014, the scale of the current tranche of sanctions has been unprecedented. From economy to culture, the West seeks to instil “pain” on Russia; as a result, it has become the most sanctioned country in the world.

While the West is using the Ukraine crisis as a watershed moment to weaponize sanctions in a volatile global setting, it has set a dangerous precedent by inspiring the private domain also to resort to sanctions. In the case of Russia, private sanctions have paved the way for private corporations and individuals to take geopolitical decisions. Whether suspending business operations in Russia or excluding its players/citizens from sports and cultural activities, these “private” decisions are detrimental and seem disproportionate to already punitive state-imposed sanctions.

In light of the circumstances, the infographic below is an attempt to study the extent and scale of Western sanctions against Russia. It enumerates an inexhaustive list of sanctions and other restrictive measures both in the public and private sectors as of June 2022.

Monday 16 January 2023

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