Rationale for the return of the global rupee

The Indian Rupee was a multilateral currency about 50 years ago, used in international trade and global financial transactions, and serving as the local currency of many Indian Ocean littoral nations. Its deep reach was facilitated through trading communities, labour circulations and colonial hegemony. But what was incredible about its popularity was its persistence much after India’s independence in 1947. Indians off to Dubai on a vacation then—52 years ago—could pay their way in Indian rupees. (It was only on 18 September 1966 that Dubai, part of the UAE, demonetised its brightly coloured Gulf rupees, minted and managed by the Reserve Bank of India, and shifted to the dirham.)

Today, Indian millennials travelling to Dubai, use the rupee to buy U.S. dollars. It is no longer a currency of overseas trade. The Indian government and the Reserve Bank of India (RBI) have been trying since 1991 to incrementally make the rupee fully convertible and redeem it to its former status in the global economy. The cost savings of a fully convertible currency for Indian businesses engaged overseas are enormous because every dollar transacted incurs a sizeable cost. Moreover, given that the Indian economy is slated to strengthen 2019 onwards, with the full benefits of GST becoming apparent, the timing is right to speed up full capital account convertibility for the rupee.

The Indian rupee had a 500-year long innings, with some Gulf countries using it even after Indian independence in 1947. It was the long familiarity with the rupee’s denomination, the historic dhow trade with the subcontinent, and the presence of an influential Indian trading diaspora that the rupee continued in the region till 1970, when Oman finally adopted its own currency.

The rupee retreated because of some constant challenges before the RBI. One of these was the rampant gold smuggling aboard small dhows and fishing boats that occurred along the indented coastline of the Konkan (west coast) and off the island city of Bombay from the 1950s to 1970s. It was a tremendously profitable (but illegal) business that arbitraged on the fact that Indian rupees could be used to buy gold that was much cheaper in these Gulf nations in order to smuggle it into India. Its effect was devastating initially as these countries had more rupees in circulation (rupee smuggling took place in the opposite direction) than they had sterling reserves with India’s central bank. The devaluation of the Indian Rupee in 1966 in the aftermath of the 1965 India-Pakistan war and a severe drought in the country, was the final trigger for these nations to transition to their own currencies.

So how did the Indian rupee acquire such a wide and deep reach?

British imperialism is mistakenly assumed to have introduced the rupee into international trade, but it was a freely circulating trading currency way prior to the arrival of the European companies to Indian shores. The silver rupee was popular in the Indian Ocean trading world and its bazaars (like the annual Haj bazaar), which traded in multiple currencies whose values were pegged to their intrinsic metallic worth as well as the political authority that issued it.

Trade follows the flag

The Indian rupee first entered into wide circulation under Mughal rule, more particularly due to the conquests of Emperor Akbar (reign 1556-1605), whose vast empire’s northernmost mint was located in Balkh (present day Uzbekistan) and southernmost in Trichinpalli (in today’s Tamil Nadu). Its rise to a pan-Indian and overseas trade currency was aided greatly by the credibility of the Mughal mints, as minting was a rigorously supervised court function.

By the 17th century when the European trading companies like the Dutch and English arrived in the Mughal port city of Surat their cargoes consisted largely of specie (various coins) and silver bullion, which the Mughals re-cast into rupees. This was as much for the Europeans’ use in the local markets as for their onward journey to the Far East for spices. Economic historian and sociologist Andre Gunder Frank in his book ReOrient: Global Economy in the Asian Age (1998) described the sub-continent in the 17th century as a ‘silver sink’. It was a description that was later used to describe Imperial China in the 18th to early-19th centuries when the only commodity the Chinese accepted in exchange for their tea was silver bullion. This was before the discovery of opium as a tradeable commodity with the Chinese.

When the first silver Rupee of Bombaim was struck in the Bombay mint by the English East India Company in 1677, it adhered to the silver standard of the Mughal rupee. Many subsequent Bombay coins often featured Persian inscriptions with the names of the reigning Mughal emperor in order to insinuate themselves into local usage. In fact, the Bombay rupee was called the Surat, as was the Company’s Bengal rupee – Sicca—and its Madras rupee – Arcot – all names being indicative of the native prototypes they were based on. The three distinct coins also indicated different currency circles in the English East India Company’s presidencies of Bombay, Bengal and Madras. These different spheres of circulation on the subcontinent for the Company’s rupee were done away with when uniform coinage was introduced in 1835.

The rupee facilitates overseas trade

The colonial rupee piggybacked initially on the popular usage of the Mughal rupee in trade with the East Indies (Java, Batavia, Malacca, Borneo), China (Macao, Canton), West Asia (Muscat, Trucial coast, Basra), and Africa (the Mrima coast and Zanzibar). With the decline of the Mughal empire after the death of Aurangzeb in 1707, the colonial rupee slowly replaced the Mughal one overseas.

The biggest advantage of the rupee was that it was exactly half the weight of the Spanish ‘pillar dollar’ (8-real piece) or new dollars minted in the Latin Americas, which had become the most widely accepted currency in the Spice Islands, as it was the world over. This advantage continued when the Maria Theresa thaler became a multilateral currency in the Indian Ocean trading world in the 19th and early 20th centuries.

However, the circulation of the Indian rupee scaled up massively with its introduction as a de facto currency in many British colonies. The annexations of Sind, Aden, the Protectorate of East Africa, Ceylon and Burma among others, and the inclusion of the Trucial Coast, Muscat & Oman and Zanzibar through treaties of exclusion, all aimed at warding off competing Russian and French influence, resulted in the rupee gaining primacy in these countries.

Interestingly, as many of these regions had already established Indian merchant communities, many belonging to Kutch and Saurashtra, like the Bhatias, Jains, Bohris, Khojas and Memons, it meant that the Indian rupee had already made an entry into commercial usage. British influence through treaties and outright annexation established the rupee in local circulation as happened in Dutch Ceylon after the Treaty of Amiens (1802).

The rich history of the Indian rupee from the 17th to the early 20th centuries has no comparable example from Imperial China of that period, which was sought after for its tea, silk and porcelain. It is an irony of sorts that today the Chinese Yuan is being aggressively marketed as a multilateral currency through the physical-virtual inroads of China’s Belt & Road Initiative, while the Indian rupee is being incrementally internationalised. Given the rich legacy of the rupee in the Indian Ocean trading world and its still influential merchant diaspora communities in many of its former strongholds, maybe it is time for a more time-bound and assertive strategy to make the rupee fully convertible.


  1. The exception here are Nepal and Bhutan whose bilateral trade with India is in rupees. Bilateral currency swap agreements of the 1960s and 1970s with the former Soviet bloc countries also enabled trade in rupees. The Asian Clearing Union (Tehran) established in 1974 by the United Nations Economic and Social Commission for Asia and Pacific was founded with the aim to facilitate payments among member countries on a multilateral basis and avoid the use of foreign exchange dollar reserves and to minimize transaction costs.
  2. The Indian economy was under a strict foreign exchange control system for the first four decades of Planning (1950 to the 1980s). With the initiation of liberalization (new economic reforms) in 1991, the rupee became partly convertible from March 1992. Ever since the rupee has been incrementally moving towards full convertibility. It is not yet fully convertible on capital account but largely convertible on current account.
  3. It became smuggling after Finance Minister Morarji Desai first implemented the Gold Control Rules in 1963 and later Act, which effectively meant that individuals could not possess gold bullion, gold TT bars, and order gold jewelry above a certain weight, fineness and value. This Act applied to jewelers too, who were required to possess a license to conduct business. The Act was intended to stem the outflow of foreign exchange. It remained in force till 1990.
  4. As the RBI acted as the central bank to these countries they maintained sterling reserves with the RBI which was commensurate with the rupees in circulation. It was discovered that they were repatriating more rupees for conversion to sterling pounds than their drawing limit with the RBI. Effectively India was paying with precious foreign exchange for the smuggled gold. This was when the RBI came up with the idea of a Gulf rupee that was brighter than the Indian rupee and began with the alphanumerical Z.
  5. The Mughal mints from the time of Emperor Akbar (r. 1556 to 1605) to Emperor Aurangzeb (died 1707) were rigorously supervised for the quality of the coins minted, hence the Mughal Rupee during this period gained widely acceptability as a currency of trade.
  6. Bhandare, Shailendra, ‘Money On The Move: The Rupee and the Indian Ocean’ in Ray, Himanshu and Alpers, ed. Cross Currents And Community Networks: The history of the Indian Ocean world (New Delhi, Oxford University Press, 2007), p.209.
  7. The introduction of the silver standard for the Indian rupee has been traced to the third Mamluk (slave dynasty) ruler, Shams-ud-din Iltumish (r.1211-36 AD). The name derives from rupyam (silver coin) given by the Afghan ruler Shershah Suri, who was overthrown in 1555 by Emperor Akbar’s father, Humayun, who had been dislodged from the throne in Delhi by Suri. The Mughals continued not just with the name but adhered to the monetary reforms that Suri had implemented.
  8. Surat had the most active and profitable mint on the subcontinent because it naturalized all specie (various coins) and silver bullion brought by the Europeans into rupees not only for local purchases like cotton piece goods, indigo and other manufactures, but also for use on their onward journey. The Mughal silver rupee was accepted in most kingdoms in the east and far east.
  9. Andre Gunder Frank, a German American economic historian and sociologist, promoted the world systems theory in his book ‘ReOrient: The Global Economy in the Asian Age’, where he explores the argument that the contemporary world system is part of a continuous 5000-year-old history, and provides evidence to contest the commonly held Euro-centric view that placed Europe in the center of global economic development.
  10. The Maria Theresa Thaler is a silver bullion coin named after Empress Maria Theresa who ruled Austria, Hungary and Bohemia from 1740-1780. The Thaler was very popular in the West Asia trade.
  11. These communities all had strong trade and community connections not just with their villages in present day Gujarat but with Bombay, which is today a stronghold for these mercantile communities.


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