- The real test of de-dollarisation, therefore, is not whether countries can stop using the dollar, but whether they can develop viable alternatives to the functions it performs.
- The India–Russia trade relationship therefore encapsulates a central paradox of de-dollarisation: reducing dependence on the dollar is possible, but replacing the economic functions performed by the dollar is considerably more difficult.
- Expanding investment opportunities, deepening financial markets and broadening the availability of Indian goods and services are therefore just as vital to the internationalisation of the rupee as the introduction of new payment mechanisms.
- The real test of de-dollarisation, then, is not to displace the dollar, but to develop sufficiently robust alternatives that can coexist alongside it.
For years, the discussion around de-dollarisation has revolved around a dramatic question: Is it possible to remove the US dollar from the global financial system? Yet the bigger transformation may be taking place in the realm of bilateral commerce. With sanctions, geopolitical tensions and concerns over financial dependence reshaping the global economy, countries are increasingly looking to conduct trade in currencies other than the dollar. India and Russia have emerged as one of the most important test cases for this realignment.
Turkey and Brazil are also considering expanding trade in their national currencies rather than relying on the US dollar. Sanctions, of course, have complicated this process further, but countries such as Russia and India were already exploring alternatives to the dollar well before the war in Ukraine began. Yet the rupee-rouble experiment also illustrates the difficulties of simply moving away from the dollar. Using local currencies for trade transactions is one thing; creating an entire financial and economic system capable of sustaining large-scale trade without the dollar is another. The growing trade imbalance between India and Russia—and the challenge of recycling accumulated rupees—is a case in point. The real test of de-dollarisation, therefore, is not whether countries can stop using the dollar, but whether they can develop viable alternatives to the functions it performs.
Why India and Russia Needed an Alternative
The move towards local-currency settlement in India–Russia trade was driven less by an ideological objective of discarding the dollar than by practical necessity. Following Russia’s invasion of Ukraine and the Western sanctions that followed, conventional channels for conducting business with Moscow became increasingly complicated. Restrictions on Russian banks, heightened scrutiny of transactions and the broader risk of secondary sanctions added to the difficulty of using the traditional dollar- and euro-based payment systems.
At the same time, India’s economic ties with Russia expanded rapidly, particularly after New Delhi significantly increased its imports of discounted Russian crude oil. Russia consequently became a major energy supplier to India, while bilateral trade reached unprecedented levels. However, this rapid expansion presented a practical challenge: with traditional payment channels increasingly constrained, how could such large volumes of transactions be settled reliably?
Local-currency settlement offered one possible solution. The two sides sought to allow Indian importers to make payments in rupees and Russian entities to receive payments through designated banking arrangements. The objective was to reduce dependence on Western-controlled payment systems and ensure that trade could continue despite growing geopolitical risks. Russia has also increasingly turned to the use of the rouble and other currencies in its trade relationships.
Yet the India–Russia case is significant precisely because it demonstrates that creating an alternative payment mechanism is only the first step. Settling a transaction outside the dollar is possible; ensuring that the currency received remains economically useful is a far more complicated challenge. As trade between the two countries expanded, this question became central to the future of the rupee-rouble experiment.
The Rupee Accumulation Problem
The rapid expansion of India–Russia trade highlighted a key vulnerability of the local-currency settlement model: trade between the two countries was heavily imbalanced. India’s imports from Russia, driven primarily by crude oil, surged, while Indian exports to Russia remained comparatively limited. This resulted in Russian exporters accumulating large quantities of rupees with relatively few avenues to spend them on Indian goods or services.
This has created a problem that extends beyond the India–Russia relationship. A currency can function effectively as a medium of trade only when the recipient has an incentive to hold and use it. Russian firms receiving rupees need to be able to purchase Indian goods, invest in Indian assets, convert those funds into other currencies, or deploy them in financial markets. The rupee is likely to be accepted for significant volumes of trade only if these options become sufficiently available.
This is where the distinction between settlement and currency internationalisation becomes important. Two countries can agree to settle trade in their national currencies, but such an arrangement does not automatically make those currencies internationally useful. The dollar’s dominance rests not merely on its widespread use in transactions, but on the vast financial ecosystem surrounding it. Dollars can be invested, borrowed, converted and deployed across global markets with relative ease.
The rupee, by contrast, remains subject to capital controls and is not fully convertible. While this enables India to maintain greater control over its financial system, it also limits the rupee’s attractiveness as a reserve or settlement currency for countries that accumulate large surpluses. The India–Russia trade relationship therefore encapsulates a central paradox of de-dollarisation: reducing dependence on the dollar is possible, but replacing the economic functions performed by the dollar is considerably more difficult.
More Than a Currency Problem
The rupee accumulation problem is a microcosm of a key limitation of the de-dollarisation argument: moving away from the dollar in individual transactions does not mean that the functions performed by the dollar have been replaced. The dollar is more than just a currency used to settle trade; it is embedded in a complex global financial system that allows countries, companies and financial institutions to invest, borrow, hedge risks and transfer capital across borders.
That is why replacing the dollar requires more than bilateral agreements to use national currencies. Alternative currencies also need liquidity, convertibility and access to financial markets of sufficient depth. A country receiving another nation’s currency through trade must have confidence that it will be able to use those funds productively or convert them when necessary. In the absence of such mechanisms, local-currency arrangements risk remaining limited to individual transactions rather than evolving into sustainable systems capable of supporting large volumes of trade.
The challenge is well illustrated by the India–Russia experience. The two countries have demonstrated that trade can continue despite disruptions to traditional payment channels. However, the long-term viability of local-currency settlement ultimately depends on what happens after the payment is made. If Russia continues to accumulate rupees without sufficient opportunities to spend or invest them, the arrangement will remain constrained by the underlying trade imbalance.
That is why the issue before India is not simply how to persuade other countries to conduct more trade in rupees. The bigger challenge is how to build an ecosystem in which foreign holders of rupees have meaningful reasons to retain them. Expanding investment opportunities, deepening financial markets and broadening the availability of Indian goods and services are therefore just as vital to the internationalisation of the rupee as the introduction of new payment mechanisms.
The rupee-rouble mechanism therefore provides an important insight into the wider debate on de-dollarisation. No currency can become internationally significant simply because governments decide to use it. Its international role ultimately depends on the economic and financial infrastructure that gives foreign holders confidence in its long-term utility.
Beyond the Dollar
The future of de-dollarisation is unlikely to be marked by the abrupt disappearance of the dollar. A more complex scenario is likely to emerge, with a fragmented financial system in which countries increasingly use local currencies for bilateral and regional transactions while continuing to rely on the dollar for much of global finance.
For India, the rupee-rouble experiment is both an opportunity and a warning. It demonstrates that alternatives can be developed when geopolitical circumstances demand them, but also that payment mechanisms alone cannot create a viable financial alternative. The real test of de-dollarisation, then, is not to displace the dollar, but to develop sufficiently robust alternatives that can coexist alongside it.
Archita Gaur is a postgraduate student at the School of International Studies, JNU. She specialises in the World Economy and has a strong interest in public policy, economic research, and governance. The views expressed are the author’s own.
Parag Gilada 
Kumar Satish 
Diksha Bharti