The Indian Rupee’s Gulf Connection

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    It is hard to imagine, but till even 1970, you could have found currency issued by the Reserve Bank of India, in circulation as the official currency in the Gulf region. Till as late as the 1960’s and the oil boom, countries including UAE, Qatar, Bahrain, Kuwait and Oman used the Indian Rupee as their official currency. Specially issued by the Reserve Bank of India, the ‘Gulf Rupees’, as they were called, reflected the close historic, political and commercial ties between India and the region.

    For almost two hundred years from 1763 to 1971, the British Empire maintained varying degrees of political control over the Persian Gulf states. The region encompassed the various sheikhdoms and principalities of the present day United Arab Emirates (UAE) as well as Bahrain, Qatar, Kuwait and Oman. Prior to the oil boom that started in the region in 1960s these principalities were not very economically advanced. Commerce was restricted to trading in dates, camels, fishing and pearl diving - Basra, in Iraq was home to the worlds most coveted and expensive natural pearls . But the economies of these kingdoms were so small, that it didn't even make sense for them to mint their own currency. As a result, they used the Indian Rupee, minted in India by the British East India Company and then the Government of British India, instead.

    This practice was continued even after India’s independence from the British Empire in 1947.

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

    By 1957-58, Gold smuggling into India had reached alarming proportions. A report published by the Reserve Bank of India in 1959, estimated that gold worth 92.4 million USD had been smuggled into India till then. To address the issue of the drain of India’s foreign exchange reserves due to smuggling, the then Indian Finance Minister Morarji Desai and the Reserve Bank of India under Governor H V R Iyengar began consultations with the Gulf states, which were still under British suzerainty and the Bank of England. It was decided that special currency notes would be introduced for exclusive circulation in the Persian Gulf.

    The following extract from the Reserve Bank of India Bulletin, in May 1959, explains the measures taken by the Reserve Bank of India:

    The Reserve Bank of India (Amendment) Act 1959, providing the issue of special notes of the Reserve Bank of India (one rupee notes), which are intended for circulation in certain territories outside India, was passed by the Lok Sabha on April 29, 1959 and Rajya Sabha on April 30 and received President’s assent on May 1, 1959. The Indian rupee has been serving as the traditional medium of exchange in the Gulf States of Kuwait, Bahrain, Qatar, the Trucial State and in parts of Muscat, for a long time, and by custom, the Government of India and Reserve Bank of India have been providing the currency for circulation.’

    These new ‘Gulf Rupee’ notes were introduced by a bill passed in both the Houses of the Indian Parliament and Presidential assent on May 1, 1959 and were referred to as the ‘External Rupee’ or the ‘Gulf Rupee’. It must be noted that this issue of special notes, was not a legal tender in India and was exclusively for use in the Persian Gulf.

    The process of exchange appears to have been completed in the Gulf States with little trouble. A period of 6 weeks was given, from 11 May, 1959 to 21 June 1959 to exchange all the old Indian rupees in the Gulf with the new notes. The exchange was completed smoothly and the new notes came into circulation. It was estimated that at the time that the special notes were introduced, there were 300 to 500 million Rupees circulating in the Gulf.

    The Gulf Rupee notes were similar in design to the notes then circulating in India with a few differences. The notes were of different colors; they were payable only at Bombay (rather than 'at any office of issue'), and they carried a special serial number prefix of 'Z' over a number.

    Interestingly, at the time, when the ‘Gulf Rupee’ notes were introduced, the Reserve Bank of India also realized that, a number of Indian rupee notes were being taken by Haj pilgrims to Saudi Arabia each year. These were then returned to the Reserve Bank of India in Bombay for conversion into pounds sterling. To ensure that no smuggled rupees could be returned from the Persian Gulf via the Saudi Arabian banks, the Reserve Bank of India also introduced two special 'Haj notes' of 10 and 100 rupees. These notes were not legal tender in India but could be converted at Bombay into Indian rupees or into pounds sterling under agreements in place with the Saudi Arabian banks.

    These ‘Haj’ notes too were of different colors from the ones used in India - blue for the Rs 10 note instead of violet and red for the Rs 100 note instead of purple. The word 'HAJ' appears to the left and right of 'The Reserve Bank of India' at the top of the notes and the serial numbers all begin with the prefix 'HA'.

    The Gulf Rupee did not however remain in circulation for long. The many economic and political changes in the Persian Gulf countries in the decade of the 1960’s meant that the states began issuing their own currencies. Massive oil reserves were discovered in the region during this time and soon big money began rolling into these once backward economies. Kuwait was the first Gulf state to introduce its own currency, the Kuwaiti Dinar in 1961. Bahrain introduced its own Bahraini Dinar four years later in 1965.

    The on 6th June 1966, Indira Gandhi’s government devalued the Indian Rupee by almost 57% from Rs 4.76 to Rs 7.50 to a dollar. This was done to aid the Indian economy which was in a precarious state due to the trade deficit, reliance on foreign aid and wars with China and Pakistan. The move was heavily criticized in India, but it also had a ripple effect on the Gulf economies as well. From early 1966, when reports of possible devaluation of the Indian Rupee began to be circulated, Gulf states had raised their concerns with the Indian government about the impact such a move would have on their economies. They had even demanded that the British Government intervene, as it was the British who were responsible for the circulation of Indian currency in the Gulf. Despite their protests, the devaluation took place and the Gulf states had no option but to stop using the Indian rupees as a legal currency.

    Thus, by end of 1966, almost all states had replaced the Indian rupees in circulation either with the Saudi Riyals or Bahraini Dinars. Only, Oman continued to use the Gulf Rupee till 1970, when it too introduced its own currency – the Omani Rial. With this, the Gulf Rupees, as well as Haj notes, were withdrawn from circulation.

    Today, these notes are quite popular among numismatic collectors both in India as well as Gulf states. On 25th April 2017, at the Spinks Auction in London, a Rs 100 Haj Pilgrim issue of 1950 of the serial number HA 078400 was sold for 44,000 pounds (hammer price). The total cost of the note including the taxes was a whopping 52,800 pounds!


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