Chinmaya IAS Academy – Current Affairs Chinmaya IAS Academy – Current Affairs
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Internationalisation of the rupee will serve India well The Indian rupee was once a multilateral currency, its usage prevalent across the Indian Ocean in places as varied as Java, Borneo, Macau, Muscat, Basra and Zanzibar. The historic dhow trade ensured that the Gulf had a familiarity with the rupee for over five centuries, with Oman utilising the ‘Gulf rupee’ till 1970. Colonial rupee The accession of George V to the throne in 1911, enshrining his rule of the British Raj, led to the issuance of a new rupee coin. The colonial rupee leveraged the Mughal rupee’s popularity, facilitated by trading communities, migration and the Raj’s hegemony. The annexation of Sindh, Ceylon and Burma further encouraged the primacy of the rupee in these areas. Meanwhile, a number of Indian merchant communities had established themselves in such regions, aiding in its convertibility. Even after Independence, Dubai and other Gulf states were using RBI-minted Gulf rupees until 1966. Between the 1950s and 1970s, gold smuggling was rampant on the Konkan coast, with a number of Gulf businesses buying gold cheaper in the Gulf in rupees and smuggling it to India. Only the devaluation of the Indian rupee in 1966, after the 1965 war, led to such nations switching to their own currencies. Now, only Nepal and Bhutan regularly conduct bilateral trade with India in rupees. The rupee’s valuation is often of concern. The value of the rupee itself has varied over the years too – contrary to WhatsApp rumours, the rupee was never equal to the U.S. dollar. In 1947, the rupee-dollar rate was at Rs. 3.30. The aforementioned devaluation in 1966 raised it to Rs. 7.50, reaching Rs. 32.4 by 1995. This decline was precipitated by a variety of factors – wars with Pakistan and China, the adoption of Five Year Plans requiring foreign loans, political instability and the Oil Price Shock of 1973. Of late, the rupee has been declining given higher oil prices and FII outflows from stocks and bonds. The ongoing U.S.-China trade war, Iran sanctions and further upward movement in oil prices will continue to test the rupee’s valuation.
