India Opens Rupee Trade to BRICS as US Tariffs Add Pressure

A bigger role for the rupee in international trade

India is inviting BRICS countries and other trading partners to settle cross-border trade in Indian rupees, with the Reserve Bank of India making it easier for banks to open the accounts needed to handle those payments. As of August 17, 2025, the initiative comes against the backdrop of a 50% US tariff on Indian goods and threats of further tariffs against BRICS countries pursuing alternatives to the dollar.

The RBI circular allows banks to open more Special Rupee Vostro Accounts, known as SRVAs, for foreign banks without obtaining prior approval. These accounts provide a route for exporters and importers to pay and receive money in rupees instead of first converting their currencies into US dollars.

Prime Minister Narendra Modi's government sees a wider international role for the rupee as a way to strengthen India's economic position and preserve its freedom to make decisions under outside pressure. The immediate ambitions include reducing currency conversion costs, attracting more rupee inflows and potentially supporting the rupee's exchange rate.

India's stated position stops short of replacing the dollar as the world's main reserve currency. Its approach is to expand the circumstances in which businesses can use rupees, particularly when trading partners face shortages of widely accepted foreign currencies or restrictions arising from sanctions.

The practical question is whether foreign businesses will want to receive rupees and whether they can spend or invest those rupees afterward. Easier account opening addresses one part of that process; acceptance, currency risk and investment choices shape the rest.

How the accounts move money

A Vostro account is an account that a bank holds for another bank. Under India's arrangement, a foreign bank can hold rupees with an Indian bank on behalf of its customers. The RBI describes the system as similar to correspondent banking, through which banks help one another make payments across borders.

A foreign company buying Indian goods can pay the Indian exporter in rupees through this arrangement. An Indian company importing goods can also make a rupee payment through the banking system. The accounts give the banks a place to receive, hold and transfer the currency used to settle those transactions.

Using rupees removes the need for a dollar conversion in those payments. That can reduce conversion costs and make settlement faster and more efficient, while reducing reliance on the dollar as the currency linking the two sides of a trade.

The RBI's removal of prior approval for opening these accounts is intended to simplify the process for participating banks and foreign businesses. India is pairing that administrative change with a broader effort to encourage trading partners to use the currency.

Banks and customers must still meet India's Know Your Customer requirements and other regulatory obligations. Those checks establish who is using an account and form part of the rules governing financial transactions. For foreign businesses, meeting the requirements can remain a complex task.

Why India wants more trade in rupees

India's push combines commercial goals with concerns about geopolitical pressure. A company that depends on dollars for international payments can be exposed to changes in dollar availability, exchange rates and restrictions affecting access to financial services. Rupee settlement gives participating businesses another payment option.

Modi's administration also wants India's currency to play a larger role in global finance and trade. Greater use abroad could strengthen India's bargaining position in international negotiations and expand its economic influence, particularly among emerging economies.

The government's objectives include reducing dependence on the dollar and exposure to sanctions or trade disputes, lowering payment costs for exporters and importers, and building demand for rupees. These goals connect a banking procedure to a wider ambition for monetary sovereignty: more control over the currency arrangements supporting India's trade.

The benefits depend on businesses choosing to use the system. An account can make a rupee payment possible, but exporters still need confidence that receiving rupees serves their commercial needs. The currency's usefulness after a sale is therefore central to whether the arrangement grows.

US tariffs sharpen the political stakes

President Donald Trump's 50% tariff on Indian goods has added pressure to India's trading relationships. His threats of even higher tariffs against BRICS countries pursuing alternatives to the dollar have also made currency policy part of a wider confrontation over trade and influence.

Trump has described BRICS as "anti-American" and warned of punitive tariffs against countries aligning against US interests. For India, those threats reinforce the appeal of payment options that reduce exposure to decisions made outside the country.

The pressure has reached currency markets. The rupee experienced its sharpest fall in three weeks after Trump's latest tariff threats, reflecting investor uncertainty. Other emerging market currencies also faced volatility as investors reacted to the prospect of new trade barriers.

India has continued to stress strategic autonomy, meaning the ability to pursue its own interests while maintaining relationships with competing powers. Modi has deepened ties with Russia while balancing relations with the United States, China and other major countries.

BRICS participation gives India another channel for cooperation and a way to guard against external shocks. At the same time, maintaining strong ties with the United States and other major economies remains part of the government's balancing task.

BRICS members share an aim, but take different routes

BRICS has long discussed reducing the dollar's dominance in international trade. Its expanded membership brings together Brazil, Russia, India, China, South Africa, Iran, the United Arab Emirates, Ethiopia, Egypt and Indonesia, making it a group of ten countries with different economies and political priorities.

Russia and China have increased trade using their own currencies, particularly to work around Western sanctions. China's yuan, also called the renminbi, has gained use in international transactions, especially in trade with Russia. Brazil has promoted the real, while India is encouraging wider use of the rupee.

These efforts are commonly called de-dollarization: reducing the use of the US dollar in payments, financing or reserves. The use of financial sanctions by the United States and Europe has accelerated interest in alternative arrangements.

Most cross-border trade, including trade among BRICS members, still relies on the dollar. Moving more transactions into national currencies requires banks, companies and financial markets to support those currencies at a scale that makes them practical to use.

BRICS has also established the New Development Bank, launched initiatives such as BRICS Pay and discussed changes to the global financial system. Central banks are diversifying reserves, increasing gold holdings and exploring new payment systems as part of the wider shift toward more varied financial arrangements.

India draws a line at replacing the dollar

External Affairs Minister Dr. S Jaishankar has said India has no policy to replace the dollar as the world's primary reserve currency. Speaking at Chatham House in London, he described the dollar's existing role as a source of stability.

There is no policy to replace the dollar. The dollar as the reserve currency is a source of international economic stability, which is currently a global priority.

A reserve currency is money that central banks hold to help meet international payment needs and support financial stability. Expanding the use of rupees for particular commercial payments is a more limited objective than changing which currency occupies that central global role.

India is also not pursuing a shared BRICS currency. Although the idea has attracted discussion and support within the group, economic differences and mistrust among members, especially India and China, make agreement difficult.

The comparison with the European Union illustrates the scale of the task: BRICS economies are too diverse to support a common currency on that model. India's approach instead centres on using the rupee where it is workable while avoiding a direct confrontation with the dollar or the United States.

Internal divisions also limit how far BRICS can act as a single force. Members may share an interest in reducing dependence on Western financial institutions while preferring different currencies and different ways of organising trade.

Indonesia and other partners widen the effort

India's invitation extends beyond BRICS. The RBI circular has been sent to several other countries, offering them the option of settling trade in rupees. That gives the initiative a wider reach than a payment arrangement confined to one international grouping.

India and Indonesia have signed a memorandum of understanding allowing bilateral trade in their local currencies, bypassing the dollar. Indonesia's recent entry into BRICS connects that bilateral cooperation with the group's broader discussion of currency alternatives.

Indonesian President Prabowo Subianto described the purpose of local currency transactions after meeting Modi.

Using local currencies for bilateral transactions will promote trade and deepen financial integration between the two economies.

Similar arrangements exist with Malaysia, Kenya, Sri Lanka and Bangladesh. Together, these efforts reflect interest among emerging economies in reducing exposure to dollar volatility and sanctions while strengthening their own currencies and financial connections with trading partners.

For businesses in countries facing shortages of hard currency, meaning foreign money widely accepted for international payments, another settlement route can be useful. Its value depends on the trading partner accepting the currency and on banks being able to process the transaction efficiently.

Russia shows why spending the proceeds matters

Russia's trade surplus with India has created a practical difficulty for rupee settlement. Russia sells more to India than it buys from India, leaving it with large amounts of rupees that can be difficult to use.

Limited convertibility and investment options complicate the handling of those balances. Convertibility describes how readily a currency can be exchanged for another. A foreign seller receiving rupees needs ways to spend them, exchange them or hold them in a useful investment.

The RBI has responded by allowing foreign banks to invest surplus rupees in Indian government securities. These are government debt investments, giving banks an option for holding money that is not immediately needed for payments.

Liquidity and acceptance problems nevertheless persist. Liquidity means being able to move into or out of an asset or currency readily. A trading arrangement becomes harder to sustain when one side repeatedly receives money that it has limited opportunities to use.

Russia's experience puts trade balances at the centre of the discussion. Opening more accounts helps payments move, while opportunities to buy goods or invest determine what happens to the money after it arrives.

Why the dollar remains difficult to displace

The dollar retains its leading role because of its stability, liquidity and the extensive infrastructure supporting dollar transactions. The depth of US financial markets gives businesses, banks and governments many ways to hold, borrow, invest and exchange dollars.

The Carnegie Endowment for International Peace has identified the dollar's established position and the limits of alternative payment infrastructure as obstacles to reducing its use.

Dedollarization faces significant obstacles, including the dollar's entrenched role in trade, finance, and reserves, as well as the limited infrastructure for settling non-dollar transactions.

The rupee is not widely accepted outside India. International reserves remain concentrated in established currencies such as the dollar, euro and yen, while emerging market currencies such as the rupee can be more volatile than the dollar.

Currency movements matter to a business agreeing to receive payment later. A change in the exchange rate can alter the value of that payment in the currency the business uses for its own expenses. Such risks can make companies cautious about changing settlement currencies.

India's financial infrastructure for clearing and settling international rupee transactions is still developing, and global banks may be slow to adopt new processes. Regulatory requirements, limited acceptance and the possibility of further US sanctions or tariffs add to the difficulties.

The dollar continues to account for the majority of global trade, energy transactions and central bank reserves. India's practical task is to make the rupee more useful for particular transactions while building the banking connections and investment choices that wider use requires.

What the policy changes for India

The RBI's account opening change gives banks a simpler route to support rupee trade. Bilateral currency agreements broaden the pool of potential participants, while permission to invest surplus rupees in government securities addresses one difficulty faced by foreign holders.

The scale of future adoption is not yet known. The initiative depends on the willingness of businesses and banks to use rupees, the development of payment infrastructure and the course of geopolitical tensions.

For India, the strategy combines a gradual expansion of its currency's international role with an effort to retain flexibility between major powers. Its immediate purpose is practical: give trading partners more ways to pay, lower dependence on dollar conversions and make rupee balances easier to use.

Key Points

• The RBI is allowing banks to open Special Rupee Vostro Accounts for foreign banks without prior approval.
• India is inviting BRICS and other partners to settle trade in rupees, aiming to reduce conversion costs and reliance on dollars.
• The initiative comes amid a 50% US tariff on Indian goods and further tariff threats against BRICS countries.
• India says it is neither seeking to replace the dollar as the main reserve currency nor pursuing a shared BRICS currency.
• Indonesia and India have agreed to support local currency trade, with similar arrangements involving Malaysia, Kenya, Sri Lanka and Bangladesh.
• Russia's accumulated rupees show the difficulty of using surplus balances, despite permission to invest them in Indian government securities.
• Limited acceptance, currency volatility and developing payment infrastructure constrain wider rupee use, while the dollar remains dominant.