Now India’s UPI is going to be International
Non-resident Indians, which means Indians who live outside India now with the help of UPI, will be able to transfer money. 2023’s start can’t be better than this. But there is one more strategy, and India is working in the background on it. there’s an action plan, through which not only UPI. but our Indian Rupee can become international too. Today, the Indian rupee needs to be transformed; it needs to go international.
What is an International Currency?
An international currency is a currency that can be used for trade in multiple other countries. It is also known as an “actively traded currency.” You must have read in history that there was no currency before. people used “Barter System”. I’ll grow tomatoes on my farm, and if I need wheat, I’ll give my tomatoes and take wheat in return. but it had many limitations; that’s why people made currency. Whenever this piece of paper gets exchanged, one more thing gets exchanged, and that is “trust.” In that sense, even I can print a piece of paper like this. and can put any amount on that, but the problem is that. then only I will trust it, and if I trust it or not, how does it matter? other people to trust in it. and the more number of traders trust on it the more value it will have. A currency has no value without trust. Let’s take that tomato and wheat example and apply it to today’s world. Suppose India buys tea from Sri Lanka, and Sri Lanka buys sugar from China. Now Sri Lanka will accept payment in a currency that can be used in the future. which China will accept later. or else Sri Lanka will just have some Gandhi pictures stored. which they won’t be able to use.
Let’s rewind a bit. due to colonization. In world trade, the British pound had become an international currency, and in 1944, after the Bretton Woods agreement, all major countries decided that the US dollar would become a standard. The world runs on oil, and in 1973, America convinced OPEC countries to accept payment in dollars. In this one moment, America becomes a superpower. Today the US dollar, Euro, Japanese Yen, British pound, and to some extent the Chinese yuan fall into the category of international currencies. because other countries value their currency.
Why go Rupee needs to go International ?
You must have read it in the news: India’s forex reserves have fallen to their lowest level. when the dollar’s rate keeps increasing, then the RBI from their reserves starts selling dollars, so that the supply is increased and the rate lowers down. In 2022, the RBI spent more than 40 billion dollars to keep the rupee stable. today the situation is that, India is a net importer country. which means overall our imports are way more higher then our exports. and for all these imported goods we have to pay in dollars. The difference between these imports and exports is known as a trade deficit. In the month of October, our trade deficit was only $26.91 billion. no matter how many “Atmanirbhar Bharat” slogans we raise. The truth is that our imports won’t decrease, and due to this, in the future, the dollar’s price is only going to increase, but there is hope.
Hope for Indian Rupee
We analysed India’s trade date of past few years and a hopeful number came in front. There are 154 countries with whom India’s exports are greater than its imports. This is a fact: a country like China will never agree to trade in rupees, and even trying to convince them of this is a waste. But Bangladesh can agree, and Sri Lanka can agree. in fact it has agreed too. Sri Lanka has agreed to trade with India in rupees. and both countries benefit from this. If Sri Lanka doesn’t have dollars today, then it can pay in Indian rupees. Similarly, America has put sanctions on Russia so they can’t trade in dollars. Sri Lankan rupee in dollar’s comparison. has gone down by 84% and in comparison to Indian rupee only 70%. So for them, buying rupees is cheaper than buying dollars. America keeps an eye on each dollar spent outside it’s country too. regulates it and controls it. So Russia started trading with China in yuan after the Russia-Ukraine conflict. Trade has increased between Russia and China. similarly in Russia’s matter with India too. trading in rupee can happen by rupee becoming international, India will of course benefit but two types of countries will benefit from it a lot. countries like Sri Lanka, which do not have dollars, and countries like Russia, which cannot trade in dollars.
Let’s understand how trade happens in today’s world. Let’s assume “B” is a car dealer in India who is importing cars from “A.” who is a dealer in France. Now, for payment, “B” will go to his Indian bank with his Indian rupees. The Indian bank will convert it into euros and pay it to the foreign bank. then a foreign bank will transfer euros to France’s dealer “A,” and then the cars will be shipped from France to India. Now this situation is going to change now that RBI has started a special vostro account system. Here, foreign banks can open Indian rupee accounts for trade. Suppose France opens a vostro account with SBI. Now, when the Indian dealer “B” imports cars from France, he doesn’t have to pay in euros but in rupees only. these payments are to be done, not on a foreign bank in this vostro account of France Indian rupees will be deposited. Then what will they do with those rupees? France can spend the rupees from its vostro account on exporters in India by buying goods from them. which means Indian exporters will also get paid in Indian rupees only. which means Indian money won’t go out of India; that’s the plan. There are 35 countries today that are ready to trade in rupees. if India is successful in achieving this. then in this decade, it will be the biggest international win for India.
The real challenge
Convincing countries like Russia and Sri Lanka is possible, and work is going on in that direction. then convincing whom is difficult? Saudi Arabia and the UAE because in the whole financial year, after all trade is done between the UAE and India, There is $12 billion of surplus between Saudi Arabia and India; there is $20 billion of surplus worldwide. In simple terms, we sold them tomatoes; they sold us wheat, and even after that, we bought more wheat worth $12 billion and $20 billion from them. Today, these payments are done in dollars, so they can use these dollars anywhere. They can give it to any other country; they can invest anywhere else; they can buy assets from them; but if this excess money is left with them in rupees, then what’s the use of it for them? This is a big challenge for India. for which RBI and Government both have to bring huge policy changes and we have to reduce our trade deficit. Basically, we have to increase our exports, and apart from trade, how can the rupee be used? We have to think about that; foreign investors need to be incentivized to make rupee investments in India.
Is it so Simple?
Then why does India not do anything? The answer is that talking is easy, but executing those things is equally hard. Let’s take China’s example, China is trying to do these things from 2009 itself and till now has reduced only 2% of us dollars share. The US dollar is not just a currency; it is a weapon. Its dominance is so huge. How each US dollar can be spent throughout the world is controlled by the “US Fed,” which is America’s central bank. If tomorrow they put sanctions on India, then we won’t be able to buy oil in dollars. Already, oil prices are increasing, and they will increase more. To pay other countries in dollars, we will buy more dollars. Today the dollar’s price is Rs. 82. Experts say that this number can go up to 90 or 100, and here India may commit one big mistake by not taking the right steps in time. because the truth is that the whole world is going through an economic crisis. It was started in 2020, but when will it end? No one knows, like in Pakistan and Sri Lanka. Indian’s economy is also under pressure and this pressure will strengthen us or break us only time can tell this.