The Indian rupee has been sliding against the US dollar for some time, and that is the story most people hear. But there is another side to this picture. According to a report by Upstox, rupee is quietly serving certain significant strategic purposes. Its role in trade settlements and financial links is helping India reduce risks, protect reserves, and strengthen ties with partner countries.
How rupee settlement works
In July 2022, the Reserve Bank of India introduced a system that allowed foreign banks to hold rupee balances in India through Vostro accounts. These accounts let foreign banks pay Indian exporters, invest in local projects, or finance imports directly in Indian rupees.
At first, only three countries used this system. But between late 2023 and mid-2025, the participation grew rapidly. Currently, 22 countries are part of the framework, bolstering the credibility of the Indian currency.
The Reserve Bank of India has described rupee settlement as a natural step in India’s growing economic strength. Its 2023-24 annual report said wider use of the rupee in trade would reduce exchange risks and strengthen India’s role in global value chains.
Former RBI Governor Shaktikanta Das called rupee settlement a “natural progression” of India’s external confidence. Analysts observe that easing rules for Special Rupee Vostro Accounts has made the process faster and cheaper, urging banks and exporters to experience it.
Countries using rupee trade
Russia began using rupees to pay for crude oil, defence supplies, and fertilisers in 2022, followed by the United Arab Emirates and Sri lanka in 2023. Russia used the rupee settlement to bypass sanctions imposed by the European Union, while Sri Lanka adopted the route to pay for essential goods and fuel during its foreign exchange crisis. The UAE was the first OPEC country to settle oil and jewellery trade in rupees. Mauritius has been using rupees since 2022 for services and investments, linking India with Africa’s offshore financial networks. More recently, Tanzania, Kenya, and Bangladesh have started exploratory use of rupee settlement in agricultural trade and machinery.
Although rupee trade is still less than 2 percent of India’s overall trade, the spread across regions shows that the currency is being used for practical reasons.
Commentators in policy journals have pointed out that this system is not about replacing the dollar but about resilience. It gives India a “safety valve” during sanctions or dollar shortages, while also protecting reserves and offering smaller economies a stable alternative.
The Ministry of Commerce has confirmed that discussions are under way with countries in Africa and the Gulf to expand the framework.
Shielding against dollar shocks
Experts believe that India can insulate itself from the dollar pressure with the country’s own payment routes given the dollar’s domination, with about 47 percent of transactions being settled in it. It has been found out that whenever the US raises interest rates, imposes sanctions, or faces banking troubles, other countries also suffer. Now, in the its own payment routes via rupee, India has built a small safety valve.
When sanctions blocked dollar payments to Russia in 2022, rupee settlement allowed oil and defence deals to continue. This was not about challenging the dollar but about keeping trade steady when global finance turned unpredictable.
Energy security and reserves
India’s energy imports are a major burden. Nearly one-fourth of India’s imports are energy-related, and crude oil alone cost more than Rupees 180 billion in FY24. Paying for even part of this in rupees, especially with countries like Russia or the UAE, means fewer dollars leaving the system.
Using rupees for oil payments helps India reduce pressure on its foreign reserves which is worth 650 billion dollars through FY2025.
Financial diplomacy
India gets a lot of the foreign bank’s rupee accounts. It helps the country build long-term financial connections with those countries.
Plans for the future
There may be settlements with BRICS allies and other African countries in the next phase. The digital rupee is still being tested, but it might one day get connected to this system, which would make payments across borders faster and cheaper.
