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In recent months, the Indian rupee has experienced significant volatility, marked by its sharpest single-day decline in over two years. On May 8, 2025, escalating tensions between India and Pakistan led to a 1.03% drop, bringing the rupee to 85.79 against the U.S. dollar. This depreciation was influenced by a combination of geopolitical uncertainties, a strengthening U.S. dollar, and increased demand for dollars by foreign banks.
Despite these challenges, the Reserve Bank of India (RBI) is actively pursuing the internationalization of the Rupee. Efforts include reviewing the Liberalised Remittance Scheme (LRS) to align with current economic conditions and seeking government approval to allow domestic banks to lend rupees to neighboring countries, aiming to increase the currency’s usage in regional trade.
Additionally, the RBI is exploring cross-border pilot programs for its central bank digital currency (CBDC), the e-rupee, which saw its circulation rise to ₹1,016 crore by March 2025. These initiatives, coupled with the global expansion of India’s Unified Payments Interface (UPI), reflect a strategic push to enhance the Indian Rupee’s role in international finance.
While the Rupee faces near-term pressures, these structural reforms and digital innovations aim to bolster its resilience and elevate its standing in the global economic landscape.