The Indian rupee’s advance into the Sahel, thanks to the Gulf bridge

Beneath the surface of the predominantly dollar-denominated trade, something is stirring. It is certainly not the rise of the Indian rupee as a global currency. Rather, it is attempts to launch new transaction models in which India, the United Arab Emirates, Africa and even Europe are not mere bystanders. If India were to start using its own currency more extensively to pay, receive payments, invest and connect with its trading partners, what would change for European businesses? And what would change for a country like Italy, which sees New Delhi as an increasingly strategic market but remains embedded in a financial system accustomed to thinking in terms of euros and dollars? The answer is not straightforward and involves a series of assumptions. The starting point is, of course, India. A large economy does not automatically become a major international currency, but without a large economy, no currency can hope to be one. India now has a critical mass that is prompting businesses, banks and governments to take a closer look at the rupee. And India has taken its first concrete steps.

The Reserve Bank of India has established a framework for the settlement of international trade in rupees through special accounts – known as Special Rupee Vostro Accounts – opened by foreign banks with authorised Indian banks. If a foreign exporter sells goods to India, they can be paid in rupees; if those rupees remain within the Indian banking system, they can be reused for other trade transactions or, subject to specific rules, for permitted investments. It is a technical mechanism, but its political significance is clear. Fewer mandatory transactions in dollars mean less friction, less exposure to external shocks and greater room for manoeuvre. India is the EU’s ninth-largest trading partner for goods, whilst Europe remains one of the country’s main investors, with a stock of foreign direct investment in India standing at €132.8 billion in 2024. On the other hand, Europe has no incentive to switch its invoices to rupees. This raises the first question: can the rupee become more important in payments without becoming dominant in invoicing? A faster bank transfer between Europe and India – perhaps thanks to the linking of instant payment systems – does not mean that an Italian machine tool sold in Pune will automatically be priced in rupees. The Bank for International Settlements has set out a clear direction with Project Nexus: to link national instant payment systems to enable much faster cross-border transfers. The European Central Bank, for its part, has launched exploratory work to link TIPS, the European instant payment system, with UPI, the Indian infrastructure. For the non-technical reader, the difference is this: improving the tracks does not mean immediately changing the currency of the ticket. However, better tracks will make it easier, in the future, to choose new routes.

For Italia, this transformation is less abstract than it might seem. In 2024, bilateral trade between Italia and India stood at around 14.3 billion euros, with Italian exports to India totalling 5.2 billion and imports from India totalling 9.1 billion. The Italian government has set a target of increasing trade to 20 billion euros by 2029. This is not merely a symbolic target. India is already one of the most important Asian markets for Italian-made industrial goods, particularly in machinery, electronics, chemicals and metals. These are sectors where price, exchange rates, payment terms and trade credit are of paramount importance. If a proportion of payments with Indian partners were to become smoother, cheaper or less dependent on the US dollar, the impact on Italian businesses could be tangible.

But the impact would not be entirely positive, nor would it be automatic. Italia, which has a manufacturing sector made up of many specialised exporting firms, should therefore view the rupee not as a geopolitical symbol, but as an operational challenge: it needs well-prepared banks, accessible hedging instruments, clear contractual clauses and treasury expertise that extends beyond the major financial centres. There is also an industrial dimension to Italy’s role. If India wishes to internationalise the rupee, it must offer those who receive it a reason to hold onto it or put it back into circulation. This is where Italian companies can carve out a niche for themselves. Machinery, agri-food technologies, components, clean energy, sustainable mobility, specialised chemicals and waste treatment technologies are sectors in which Italia has expertise and where India has demand. The rupee becomes more credible when it does not simply sit idle in an account, but can be spent on useful goods and services. In other words, monetary internationalisation is not just a matter for central banks: it is also a matter of industrial product ranges, reliable suppliers, after-sales support, local supply chains and the ability to transform a financial balance into a real investment.

The most interesting corridor, however, does not run directly from Rome to New Delhi. It passes through the Gulf. The United Arab Emirates is a key hub because it brings together energy, finance, logistics, gold, re-export trade and a large Indian community. India and the UAE have established a settlement mechanism in local currencies – the rupee and the dirham – and the Indian Ministry of External Affairs has indicated that transactions involving gold, crude oil and foodstuffs have already been settled in local currencies. This changes the landscape for Europe, as the Gulf acts as an intermediary platform. European companies, including Italian ones, do not engage with India solely via direct routes; they also do so via Dubai, Abu Dhabi, free zones, regional banks, commodity traders and logistics firms. If the dirham becomes a more widely used link between the rupee and international trade, the system does not become ‘anti-euro’, but rather a little more multipolar. In this new triangle, the euro remains the natural currency for much of European trade and the dollar remains the safe-haven currency. Meanwhile, however, there are an increasing number of cases where a company or a state is asking itself whether it is really necessary to always take the same monetary motorway. If there is a bridge across the Gulf to get from Milan to Mumbai, and that bridge reduces journey times or costs, some will start using it. Not everyone, not straight away, not for everything. But enough to change the map.