An important point to note is that, other than the US, all these countries have a trade surplus, i.e., other countries buy more from, say, Japan than Japan buys from other countries. This means there is a natural requirement for the Japanese yen in countries (including India) which run a deficit with Japan (or any of the other surplus nations).

The US is, of course, an exception. It runs a huge trade deficit, so there is no natural need for most countries to need dollars to pay for their purchases. However, the US dollar is the hegemon when it comes to investments. The US markets (equities, interest rates, derivatives) are humongous compared to any other, so anyone who has surpluses to invest — whether countries, companies or individuals — cannot avoid the US markets, which means there is a different kind of natural need for dollars for investment.

There have been efforts, increasingly of late (particularly after the US sanctions against Russia after the Ukraine invasion closed Russia’s access to SWIFT, the largest currency clearing and settlement system), to try to reduce the dollar’s hegemony in international trade and investment. But it has been — and will continue to be — slow going, at least for the next decade or two.

Thus, for the rupee to become more acceptable internationally, the first change we have to make is to change our trade in goods from deficit to surplus. This is an extremely tall order. Currently, our exports are just 65% (or so) of our imports. Import growth has averaged about 15% year-on-year (y-o-y) over the past decade or more. Given that domestic Gross Domestic Product (GDP) growth is expected to continue reasonably strong, imports will certainly grow by at least that much going forward.

This means that we will need to grow our exports even faster. But, if exports grow at a huge 20% y-o-y, it would still take 10 years for our trade to go into a surplus. Given that average export growth over the past 10 years was only 5% y-o-y (from about $25 billion a month in 2013 to $40 billion a month today), this looks near impossible, particularly given our continued poor governance which creates multitudinous hurdles — ranging from still painful bureaucracy to a poorly educated workforce — to export growth.

Separately, export growth is also a key requirement for the rupee to get included in the Special Drawing Rights (SDR), which is an artificial currency instrument managed by the International Monetary Fund (IMF). The IMF uses this for internal accounting purposes and to provide liquidity to world central banks at a time of crisis; the Chinese yuan has been included in the SDRs since 2016.

Being part of the SDR would require countries to have a need for rupees for their reserves, enhancing its acceptability, albeit on an institutional basis. And Interdepartmental Group (IDG) at RBI released a paper on the internationalisation of the rupee last year, where it said that “our currency should be (i) widely used to make payments for international transactions, and (ii) is widely traded in the principal exchange markets. It will clearly take some time for us to get to this level of internationalization”. The IDG believes this could take over five years.

And, finally, for the rupee to become more widely accepted globally, the Indian forex market will need to be considerably deeper, more liquid, and certainly more volatile (i.e., less controlled) than it has recently been. Again, regulations will need to be loosened to the point where anyone in India can buy or sell foreign currency derivatives without having an underlying exposure. And, equally pertinent, the rules should not be changed back and forth (as we are seeing right now).

While RBI will be the primary driver of many of the changes needed, there will, of course, be many areas (taxation, for instance) where the government will have to have its say, which could also slow things down.

On the whole, we should, of course, celebrate India’s increasing global importance; for the rupee, however, it’s a much longer road to internationalisation.

Jamal Mecklai is CEO, Mecklai Financial. The views expressed are personal