Breakaway Currencies

We’ve explored nine different scenarios in which we’ve imagined a region has decided to create a new currency. Read more about breakaway currencies or select another scenario from the list below to view in more detail.

In collaboration with Dr Robert Hancké of the London School of Economics, the UK’s No. 1 retail forex provider,1 IG, has considered...

What happens if Karnataka leaves the Indian rupee and creates its own currency?

Breakaway region Karnataka

Parent country India

Old currency Indian Rupee (INR)

New currency Karnatakan Rupee

Karnataka map image

Karnataka is home to some of India’s biggest industrial success stories. Should it build on this by becoming financially independent, or are the risks too great?

Why might Karnataka create its own currency?

  • The state is one of the fastest growing parts of India
  • It has one of the main export bases in Asia, and for reasons above and beyond low costs
  • A more stable currency would likely neutralise risk from exchange rate changes
Karnataka’s capital, Bangalore, is sometimes known as the Silicon Valley of India.

Why is Karnataka’s position strong?

  • Bangalore is a global centre for new industries (ICT, biotech, finance) and related services
  • It is a leading centre for education in India – it’s home to the Indian Institute of Science, frequently ranked as the top university in the country
Growth rate in Gross State Domestic Product - Services 2012-2013   source
All of India

What could happen... Karnataka?

The effects would likely diverge along sector lines: Modern parts of the state’s economy would probably benefit from an independent currency

But workers in more traditional sectors could suffer

Globalisation would likely lead to economic growth but could also lead to calls for a more redistributive economy India?

The Indian economy would lose a significant chunk of its world-class ICT industry

It is unclear if and how the loss of that export revenue could be compensated for

Currency background

Change in value of Indian rupee (INR) since 2000, based on SDRs per currency unit   source

Change in value of Indian rupee (INR) since 2000

Dr Robert Hancké

“The political gains of monetary sovereignty are small at best, and probably outweighed by the negative consequences. The new currency would evoke tensions both within the region and with the central Indian state.”

What would the political impacts be?

For half the state’s population, which depends on the agricultural industry, an independent currency would almost certainly lead to a rise in the cost of living

Unless economic growth can be shared somehow, there are likely to be protests from the poorer parts of the population

Delhi would likely attempt to deny Karnataka monetary sovereignty, which could lead to significant political tensions

Would the pros outweigh the cons?

The benefits of monetary independence for Karnataka are unclear

The rupee has been a relatively stable currency in recent decades, and a gentle fall in its value has increased the competitiveness of the state’s export industries

Dr Robert Hancké is an Associate Professor of Political Economy at the London School of Economics. His research interests include the political economy of advanced capitalist societies and transition economies as well as macroeconomic policy and labour relations.

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