Indian Rupee

Indian Rupee (INR)

The Indian rupee (symbol: ₹; ISO code: INR) is the official currency of India, issued and regulated by the Reserve Bank of India (RBI). It is subdivided into 100 paise and is used as the primary medium of exchange across the country. Introduced as a silver coin in the 16th century by Sher Shah Suri, the rupee later became a fiat currency under British rule and today functions within the modern global monetary system.

How the rupee is managed

India operates a managed floating exchange-rate system: market forces largely determine the rupee’s value, but the RBI intervenes as needed to curb excessive volatility. The rupee is freely convertible for trade and remittances, while capital-account transactions are subject to regulatory restrictions aimed at maintaining financial stability.

Recent decades have seen a rapid shift toward digital payments (mobile wallets, UPI and other platforms), reducing reliance on cash and improving transparency. The RBI is also developing a central bank digital currency (CBDC), a digital form of fiat currency issued and regulated by the central bank.

Factors that influence the rupee’s value

The rupee’s exchange rate is affected by a mix of domestic, foreign, and global factors:

• Inflation: Higher domestic inflation relative to trading partners erodes purchasing power and weakens the rupee.
• Interest-rate differentials: Higher Indian interest rates can attract capital inflows and strengthen the rupee; lower rates can produce outflows and weaken it.
• Foreign exchange reserves: Larger forex and gold reserves provide a buffer against depreciation and reduce speculative pressure.
• Trade balance: A trade deficit increases demand for foreign currency and can weaken the rupee; a surplus does the opposite.
• Foreign investment flows: Foreign direct investment (FDI) tends to be stable and supports the rupee; foreign portfolio investment (FPI) is more volatile and can cause sharp swings when it reverses.
• Oil prices: India imports over 80% of its crude oil; higher oil prices raise import bills, increase demand for U.S. dollars, and generally weaken the rupee.
• Global and geopolitical developments: Central-bank policies abroad, investor risk appetite, and geopolitical events can drive currency movements.

Because of structural issues such as persistent trade deficits and higher relative inflation, the rupee has experienced long-term depreciation trends. Short-term volatility, however, is often moderated by RBI intervention and rising foreign exchange reserves.

Forms, features, and regional role

• Denominations: The rupee exists in coins and banknotes of various denominations. Banknotes prominently feature Mahatma Gandhi and incorporate security features—watermarks, color-shifting ink, and other anti-counterfeiting measures.
• Regional influence: While not a major global reserve currency, the rupee holds regional importance. Neighboring countries such as Nepal and Bhutan peg or closely link their currencies to the rupee, and India has promoted rupee-based trade settlements with key partners.

Recent developments

• Digitalization: India’s digital-payments infrastructure has grown rapidly, reducing cash dependency and helping financial inclusion.
• CBDC effort: The RBI is piloting and developing a digital-rupee framework as part of broader modernization.
• Internationalization: India is encouraging rupee usage in bilateral trade and settlements to reduce currency risk and increase the rupee’s global role.

Key takeaways

• The rupee is India’s fiat currency, managed by the Reserve Bank of India under a managed floating regime.
• Its value reflects a range of domestic and global influences, including inflation, interest-rate differentials, forex reserves, trade balances, foreign investment flows, and oil prices.
• Structural pressures have contributed to long-term depreciation, but RBI interventions, growing reserves, and digitalization help stabilize short-term fluctuations and support broader financial modernization.