Gulf Rupee : India's Gulf Connection

It might come as a surprise, but until as recently as 1970, the Reserve Bank of India’s currency was in circulation as the official currency of the Gulf region. Prior to the 1960s and the oil boom, countries such as UAE, Qatar, Bahrain, Kuwait, and Oman utilized the Indian Rupee as their designated currency.?

These 'Gulf Rupees', specifically issued by the Reserve Bank of India, served as a form of exchange and represented the strong historical, political, and commercial connections between India and the region. Between 1763 and 1971, the British Empire held various levels of political influence over the Persian Gulf states for close to two centuries.?

This area encompassed the sheikhdoms and principalities of what is now the UAE, Bahrain, Qatar, Kuwait, and Oman. Before the oil boom of the 1960s, despite being economically modest, these principalities had the potential to become significant economic forces.?

Their economies were predominantly centered around trading dates, camels, fishing, and pearl diving – with Basra, Iraq, known for producing the world's most sought-after and valuable natural pearls. However, given their small economies, it was more feasible for them to use the Indian Rupee, which was minted in India by the British East India Company and later by the Government of British India.

Even following India's independence from the British Empire in 1947, the Indian Rupee continued to be the official currency of the Gulf region. This enduring practice was not merely a financial arrangement but a reflection of the lasting relationships and mutual respect between India and the Gulf region.?

Another reason for creating these Gulf Rupees was India’s love for gold and its consequences. Historically, Indians have been voracious consumers of gold. After discovering gold mines in South Africa in 1884, vast quantities of gold were imported into India to cater to the ever growing domestic demand. After 1947, the Government of the newly independent India, in a strategic move to restrict the drain of India’s foreign exchange reserves, put heavy import duties on Gold imports. This led to large-scale smuggling of Gold into India, mainly from the Gulf counties, due to the substantial price difference and geographical proximity to India.

By 1957-58, the issue of Gold smuggling into India had escalated to a critical level. A report published by the Reserve Bank of India in 1959, revealed a staggering estimate-gold worth 92.4 million USD had been illicitly brought into India. This illicit trade was not just a matter of law enforcement, but a significant drain on India’s foreign exchange reserves. To combat this, the then Indian Finance Minister Morarji Desai and the Reserve Bank of India under Governor H V R Iyengar initiated consultations with the Gulf states, which were still under British suzerainty and the Bank of England.

Despite initial resistance, the Gulf states and the Bank of England eventually agreed to the proposal. The outcome of these discussions was the introduction of special currency notes for exclusive circulation in the Persian Gulf, a significant step in curbing the economic repercussions of gold smuggling.

The Reserve Bank of India (Amendment) Act of 1959 was approved by both the Lok Sabha on April 29 and the Rajya Sabha on April 30, and was given the President's assent on May 1. This Act allowed for the issuance of special one rupee notes by the Reserve Bank of India for circulation in specific territories outside of India. The Indian rupee has traditionally been used as the primary currency in various Gulf States and parts of Muscat, and the Government of India and Reserve Bank of India have customarily supplied the currency for circulation in these regions.

The 'Gulf Rupee' notes were introduced through a legislative bill that was approved by both houses of the Indian Parliament and received Presidential approval on May 1, 1959. These notes were known as the 'External Rupee' or the 'Gulf Rupee' and were designated for use solely in the Persian Gulf region, not as legal tender in India.

The exchange process in the Gulf States, a significant event in the region's economic history, was successfully concluded with minimal issues. This process was initiated due to the political and economic changes in the region, with the Gulf States transitioning from the Indian Rupee to their own currency. 6 weeks, from May 11, 1959, to June 21, 1959, was allocated to swap all old Indian Rupees in circulation in the Gulf region with the new currency notes. The transition went smoothly, and the new notes were put into circulation. It was estimated that when the special notes were introduced, there were around 300 to 500 million Rupees in circulation in the Gulf. The Gulf Rupee notes shared a similar design to the Indian notes but had a few distinctions. They came in different colors, were only redeemable in Bombay, and had a unique serial number prefix 'Z' over a number.

Notably, during the introduction of 'Gulf Rupee' notes, the Reserve Bank of India demonstrated strategic foresight. They observed that a significant amount of Indian Rupees were taken by Haj pilgrims to Saudi Arabia annually, which were then returned?to the Reserve Bank of India in Bombay for conversion into pounds sterling. To?prevent any illegal return of Rupees from the Gulf region through?Saudi Arabian banks, the Reserve Bank of India introduced two special 'Haj notes' in denominations of 10 and 100 Rupees. These notes, although not legal tender in India, could be exchanged in Bombay for Indian rupees or pounds sterling under agreements with the Saudi Arabian banks.?

The Haj notes had different colors than those used in India, with the Rs 10 note being blue instead of violet and the Rs 100 note being red instead of purple. The word 'HAJ' appeared on the notes next to 'The Reserve Bank of India' at the top, and all serial numbers started with the 'HA' prefix. Despite this, the Gulf Rupee did not remain in circulation for long due to economic and political changes in the region in the 1960s. The Gulf countries began issuing their own currencies following the discovery of massive oil reserves, with Kuwait introducing the Kuwaiti Dinar in 1961 and Bahrain introducing the Bahraini Dinar in 1965.?

In 1966,?the Indian Rupee was devalued?by nearly 57%?by Indira Gandhi's government, causing widespread criticism and affecting Gulf economies.?The move led to replacing Indian rupees?with Saudi Riyals or Bahraini Dinars in most states?by the end of 1966.?The Gulf Rupees and Haj notes were eventually withdrawn from circulation.?

Today, these notes are highly sought after by numismatic collectors in both India and Gulf states. In a notable auction in London on April 25, 2017, a Rs 100 Haj Pilgrim issue 1950 with the serial number HA 078400 was sold for 44,000 pounds, totaling 52,800 pounds, including taxes.?

Ranganathan SVN Kondala