Digital Currency Impact on the Energy Market – With Reference to India

Abstract

The Indian economy has been highly subjected to the fluctuation of the global oil prices and the fluctuation of the exchange rate as of the recent past that directly translates into an increased energy import bill of the Indian economy as well.  In the given study, it is an attempt to discuss one of the strategic solutions, i.e., the integrated adoption of the Central Bank Digital Currency (CBDC), i.e., the digital rupee, and the Local Currency Settlement (LCS) arrangements of India.  To estimate a Structural Vector Autoregression (SVAR) model with a monthly dataset between January 2015 and October 2025 and take into consideration the key variables of interest, including the INR/USD Exchange rate Volatility, the Energy Import Bill, the policy dummies indicating the introduction of the Digital Rupee and LCS system in Russia and the UAE, respectively.  It is performed through the strong analysis with the help of Foreign Exchange Reserves, Global Crude Oil Prices, IIP(Manufacturing) proxy of industrial production, Domestic Fuel Subsidy, INR/USD Exchange Rate, Trade weight NEER, and the USD-DXY Index as control variables.  The article defines concrete facts that the fluctuation of the rate of INR/USD is among the drivers of the simultaneous launch of Digital Rupee and LCS models.  It should be noted that these policies are complementary.  The Digital Rupee is the digital infrastructure of the locations, and the LCS with Russia and the UAE is the legal way of trading without dollar.  The key findings are that the policy variable shock will result in the energy import bill reduction that will be significant.  It provides substantial reasons to show that the complex system of policies offered by India may be perceived as an empirically-abandoned, but practical method of energy security improvement and establishment of the macroeconomic stability.