The first payment in rupees to the UAE for crude oil gives a major push for making it a global currency

In a significant development in global trade and finance, India has made its first-ever payment for oil in rupees to the United Arab Emirates (UAE), marking a potential turning point in the quest to establish the rupee as a global currency. This move not only strengthens economic ties between India and the UAE but also has broader implications for the international financial landscape. The historic transaction took place as part of a trade agreement between India and the UAE, where India paid for a consignment of crude oil in its own currency rather than the traditionally used US dollar. This departure from the standard practice is seen as a bold step that could have a cascading effect on global trade dynamics. The move by India to make payments in rupee aligns with the nation's broader strategy of diversifying its currency reserves. Historically, the US dollar has been the dominant currency for international trade. By opting for the rupee, India is taking a step towards reducing its dependence on dollar and promoting the use of its currency. The arrangement with the UAE proves that India has truly arrived in the world arena. Not only do many countries look up to India for direction and support but also follow the path it treads. As External Affairs Minister S Jaishankar rightly pointed out, the era of a bipolar world is over and "we are into a multipolar world" where a number of countries play pivotal roles. The payment in rupees not only has economic implications but also strengthens economic and strategic ties between India and the UAE.

It reflects confidence in each other's economies and sets a precedent for other nations to explore alternative currency options. However, it is not to suggest that the Indian rupee is anywhere near the dollar. The US dollar has long been the dominant currency in global trade, accounting for nearly 60 per cent of all foreign exchange (Forex) reserves and more than 80 per cent of global forex trading worldwide. One of the advantages of conducting trade in local currencies is the reduction of currency exchange risks. By sidestepping the need for conversions into a third-party currency like the US dollar, both India and the UAE can potentially save on transaction costs and minimise exposure to exchange rate fluctuations. Other countries may now be inspired to explore similar arrangements, challenging the longstanding dominance of the US dollar in the international financial system. But the initiative to make rupee payments poses certain challenges, too. The rupee is not as widely traded as the US dollar or the euro, which may hinder its immediate adoption on a large scale. Additionally, concerns about the rupee's stability and the need for a robust financial infrastructure will need to be addressed for the currency to gain broader acceptance. While challenges remain, the move surely signifies a shift in the traditional dynamics of international trade and finance. The global financial landscape may witness further diversification in currency usage, challenging the dominance of the dollar and contributing to a multipolar world economy.