For much of the decade following the global financial crisis, currency volatility was treated as a manageable background risk rather than a board-level concern. Central banks smoothed extremes, interest rates stayed near historic lows and treasury teams optimised around efficiency rather than resilience. That era has decisively ended.
Since 2022, global treasurers have been forced into a fundamental rethink. A world of higher-for-longer interest rates, geopolitical fragmentation and episodic liquidity stress has reshaped the foreign exchange market, now estimated at nearly $9.6 trillion in daily turnover. Institutions such as the IMF have repeatedly warned that FX liquidity shocks, once seen as peripheral, can quickly morph into systemic stress, particularly when leverage, dollar funding and sudden risk-off moves intersect.
India is not immune to these shifts. In fact, the Indian treasury function is entering a more complex phase precisely because the familiar guardrails are changing.
The Reserve Bank of India’s evolving approach to currency management, more tolerant of market-driven moves and less inclined towards constant smoothing, has resulted in wider trading ranges for the rupee. While intervention has by no means disappeared, the signal is clear: currency volatility is no longer an aberration to be ironed out, but a reality to be managed.
For Indian corporates, especially SMEs and mid-caps with thinner balance sheets, this transition has been unsettling. Hedging volumes have risen sharply, not because firms are taking more risk, but because they are discovering that unhedged exposures can no longer be absorbed quietly. The rupee’s behaviour over the past two years has underscored an uncomfortable truth: treasury risk can move faster than operating cash flows.
Globally, treasurers have responded to this new environment by simplifying rather than sophisticating their playbooks. After the painful lessons of complex structured products during previous cycles, many multinational firms have moved decisively towards plain-vanilla instruments: forwards, swaps and simple options, with higher hedge ratios and clearer objectives. Dynamic hedging policies, once seen as optional, are now embedded into treasury governance, allowing exposures to be adjusted as macro conditions evolve rather than frozen at the start of the financial year.
Indian treasuries are beginning to mirror these shifts, though not without friction. One major challenge is the changing regulatory framework itself. The RBI has been gradually moving from prescriptive rules towards a more principles-based regime for derivatives and hedging. This shift is strategically sound, it encourages broader participation, deeper onshore markets and better price discovery, but it places a heavier burden on corporate governance. When rules are less explicit, judgment matters more.
For treasury teams accustomed to checklist compliance, this transition can be risky. Documentation standards, suitability assessments and internal approvals now demand a level of sophistication that not all firms have historically invested in. The danger is not regulatory non-compliance alone, but the mismatch between product complexity and organisational capability.
Another layer of risk is emerging from India’s growing integration with global capital markets. External commercial borrowings, offshore funding lines and foreign-currency trade exposures have expanded steadily, particularly among ambitious mid-sized firms. While this reflects confidence in India’s growth story, it also introduces currency and interest-rate risks that cannot be wished away during periods of global tightening.
In such an environment, treasury can no longer operate as a back-office function focused on execution. It must evolve into a strategic risk cockpit, capable of interpreting macro signals and translating them into actionable decisions. Oil prices, US interest-rate trajectories, geopolitical flashpoints and global risk sentiment are no longer abstract variables; they directly shape cash flows, margins and even covenant headroom.
What distinguishes resilient treasury functions globally is not superior forecasting but disciplined preparation. Boards are increasingly demanding clarity on risk appetite, how much currency and rate volatility the firm is willing to tolerate, and under what circumstances. This clarity allows treasury teams to act decisively when markets move, rather than scrambling for approvals amid turbulence.
Equally important is a clear governance framework distinguishing acceptable hedging tools from those that merely masquerade as optimisation. Plain-vanilla instruments may appear conservative, but in volatile markets they often provide the most reliable protection. Exotic structures, while tempting in benign conditions, can amplify stress precisely when protection is needed most.
Indian corporates have an opportunity that many global peers lacked in earlier crises: the ability to learn from recent global FX shocks before experiencing a domestic one of similar magnitude. The episodes of dollar funding stress, rapid rate repricing and currency dislocations seen elsewhere offer a live case study in what happens when treasury risk is under-appreciated.
This moment calls for a forward-looking treasury checklist, one that embeds macro scenario analysis into routine decision-making, elevates treasury conversations to the board level and treats hedging as a risk-management discipline rather than a cost-minimisation exercise. The goal is not to predict the next crisis, but to ensure that when volatility arrives, it does not metastasise into a solvency or liquidity event.
The rupee’s journey ahead is unlikely to be smooth. But volatility, when anticipated and governed well, need not be destabilising. For Indian treasuries, the challenge and the opportunity is to internalise global lessons early and to build resilience before markets demand it.
