‘Not Worried About Indian Rupee,’ US Treasury Secretary Brushes Off Idea of Rupee Becoming Reserve Currency
Introduction
In a recent statement, U.S. Treasury Secretary Scott Bessent dismissed speculation about the Indian rupee challenging the U.S. dollar’s dominance as a global reserve currency, saying, “There are a lot of things I worry about. The rupee becoming a reserve currency is not one of them.” This comment, made amid escalating trade tensions and a weakening rupee, has sparked discussions about India’s economic trajectory and the dollar’s unshakable position in global finance. This blog explores the context of Bessent’s remarks, the rupee’s current challenges, the feasibility of it becoming a reserve currency, and the broader implications for India’s economy.
Context of the Statement
Bessent’s remarks came during an interview with Fox Business on August 28, 2025, in response to a question about whether India could shift trade to the rupee, sidelining the dollar. His dismissal was rooted in the rupee’s recent performance, which he described as near an “all-time low” against the dollar. The rupee hit a record low of 87.29 in early 2025, driven by foreign fund outflows, a widening trade deficit, and new U.S. tariffs imposed by President Donald Trump on countries like Canada, Mexico, and China. Despite these pressures, Bessent expressed optimism about resolving trade tensions with India, noting that as the world’s largest democracy and economy, respectively, the U.S. and India would “come together” despite “complicated” negotiations.
Why the Rupee Is Under Pressure
The Indian rupee has faced significant challenges in 2025, contributing to skepticism about its potential as a reserve currency:
- Widening Trade Deficit: India’s merchandise trade deficit soared to $37.8 billion in November 2024, fueled by rising imports of crude oil, gold, and electronics, which are primarily transacted in U.S. dollars. This increases dollar demand, depreciating the rupee.
- Foreign Capital Outflows: Foreign institutional investors pulled $15 billion from Indian markets in late 2024, driven by higher U.S. interest rates, global geopolitical uncertainties, and India’s slower-than-expected GDP growth. This reduced demand for the rupee, pushing its value down.
- Strong U.S. Dollar: The U.S. dollar index rose over 7% in Q4 2024, bolstered by robust U.S. economic growth, high interest rates, and anticipated inflationary policies under the Trump administration. This has put pressure on emerging market currencies, including the rupee.
- RBI Interventions: The Reserve Bank of India (RBI) sold $40 billion from its foreign exchange reserves in late 2024 to stabilize the rupee, reducing reserves to $570 billion by December 2024 from a peak of $640 billion in 2022. Despite these efforts, the rupee depreciated 2.74% year-to-date in 2024.
Indian Finance Minister Nirmala Sitharaman countered criticism of the rupee’s decline, stating it remains stable against most currencies except the dollar, thanks to India’s strong macroeconomic fundamentals. She noted a 3% depreciation against the dollar but emphasized the rupee’s low volatility compared to other Asian currencies.
Can the Rupee Become a Reserve Currency?
A reserve currency is widely used in international transactions, held in significant quantities by central banks, and considered a stable store of value. The U.S. dollar dominates global trade, with over 80% of international transactions and nearly 60% of global foreign exchange reserves denominated in dollars. Bessent’s skepticism about the rupee stems from several structural and economic hurdles:
- Economic Size and Stability: India, despite being the world’s fifth-largest economy, lacks the economic scale and stability of the U.S. A reserve currency requires deep financial markets, low inflation, and consistent growth, areas where India faces challenges due to its trade deficit and reliance on imports.
- Currency Convertibility: The rupee is not fully convertible on the capital account, limiting its use in global markets. Full convertibility would require significant reforms, which could expose India to currency volatility risks.
- Global Trust: The dollar’s status as a safe-haven currency is reinforced by the U.S.’s political stability, military power, and institutional credibility. The rupee, weakened by recent depreciation and external pressures, struggles to inspire similar confidence.
- BRICS De-Dollarization Debate: Speculation about a BRICS currency or the rupee gaining prominence arose from discussions about reducing dollar dependency. However, External Affairs Minister S. Jaishankar clarified that India has no policy to replace the dollar, and BRICS lacks a unified de-dollarization stance. Former RBI Governor Shaktikanta Das also dismissed BRICS currency talks as “just an idea in the air.”
Bessent’s comments align with his broader stance on maintaining dollar dominance. He also dismissed the Chinese renminbi as a reserve currency contender, citing its limited global reach.
Implications for India
The rupee’s depreciation and the dismissal of its reserve currency potential have several implications:
- Higher Import Costs: A weaker rupee raises the cost of imported goods like oil, electronics, and edible oils, contributing to inflation. For instance, every rupee fluctuation increases electricity generation costs by 4 paise per unit for coal-based projects.
- Export Competitiveness: A depreciating rupee makes Indian exports more attractive, potentially boosting sectors like IT, textiles, and pharmaceuticals. Finance Secretary Tuhin Kanta Pandey noted that a weaker rupee could enhance export competitiveness despite global trade challenges.
- RBI’s Balancing Act: The RBI faces a delicate task of managing rupee volatility without depleting reserves. Analysts suggest allowing gradual depreciation to maintain export competitiveness while avoiding sharp corrections.
- Trade Tensions: U.S. tariffs, including a 50% duty on Indian goods and a 25% penalty over India’s Russian oil purchases, complicate trade negotiations. Bessent’s optimism about a U.S.-India trade deal suggests potential for resolution, but India’s high tariffs and trade surplus with the U.S. remain sticking points.
What Lies Ahead for India
India’s policymakers are focused on stabilizing the rupee and strengthening economic fundamentals:
- Boosting Exports: Initiatives like “Make in India” aim to reduce the trade deficit by promoting domestic production and export growth.
- Attracting Investment: Investor-friendly policies and simplified business regulations could stem capital outflows and bolster the rupee.
- Reserve Management: Diversifying foreign exchange reserves and issuing sovereign bonds could enhance the RBI’s ability to manage currency volatility.
- Global Positioning: India must clarify its stance on de-dollarization to avoid misperceptions, especially amid U.S. concerns about BRICS currency plans.
For Indian businesses and consumers, staying informed about exchange rate trends and planning for higher import costs will be crucial. Exporters, however, may find opportunities in a weaker rupee.
Conclusion
U.S. Treasury Secretary Scott Bessent’s dismissal of the Indian rupee as a potential reserve currency underscores the dollar’s entrenched dominance and the rupee’s current vulnerabilities. While India’s economic growth and global influence are undeniable, the rupee’s path to reserve currency status is fraught with challenges, including limited convertibility, economic scale, and global trust. As India navigates trade tensions, a widening deficit, and a strong dollar, the RBI’s strategic interventions and long-term reforms will be key to stabilizing the rupee and enhancing its global standing. For now, Bessent’s confidence in the dollar’s supremacy and his lack of concern about the rupee reflect the economic realities of 2025.
Stay updated on economic developments through trusted sources like the Reserve Bank of India (www.rbi.org.in) and the U.S. Treasury Department (www.treasury.gov).
