The rupee was first introduced by Sher Shah Suri, Emperor of North India, in the 16th century, at a ratio of 40 paisa (copper pieces) to the rupee. Historically, the rupee was on a silver standard, while other more powerful economies, such as the United States, were on a gold standard. As more and more silver was discovered by the West, the value of silver dropped, and so did the purchasing power of the rupee.
In 1898, the rupee was tied to the gold standard through the British pound by pegging the rupee at a rate of 15 rupees to a pound. In 1920, the rupee was increased in value 10 rupees per pound. However, in 1927, the rupee was devalued again, to a rate of 13 rupees per pound. This peg was maintained until 1966, when the rupee was devalued and pegged to the U.S. dollar at a rate of 7.5 rupees per dollar, until President Nixon closed the gold window in 1971, when the rupee became free floating.
The subunit of the rupee is known as the paisa (plural paise). At the time of this writing (3 May, 2009), a US dollar could buy 49 rupees 41 paise.
For a long time, the rupee was also used outside India, especially in the Straits Settlements before 1867 and parts of the Middle East until the 1960s. Currently, only Bhutan uses the Indian rupee on a regular basis, the Bhutanese ngultrum being pegged on a 1:1 basis with the rupee. Towns along the Nepalese-Indian border also accept rupees, the Nepalese rupee being pegged to the rupee at 1.6 Nepalese rupees per Indian rupee. Until Partition in 1947, Pakistan also used the Indian rupee, being in the same colony until then.
Current rupee coins are of 25 and 50 paise, 1, 2 and 5 rupees. Banknotes are of denominations of 5, 10, 20, 50, 100, 500 and 1000 rupees. All banknotes have featured Mohandas “Mahatma” Karamchand Gandhi, the Father of the Nation, since 1996. What is interesting about Indian banknotes are that they have the value of the banknote written in 17 languages, a world record. Closely behind is South Africa, with its 11 official languages, but only 2 are featured on any one note.
There are also other currencies named the rupee or have similar names, all derived from the Hindi word rupyakam. In Nepal, Pakistan, Sri Lanka, Mauritius and the Seychelles, it is called the rupee; while in the Maldives, it is known as the rufiyaa; in Indonesia, it is the rupiah; in Bangladesh, it is known as the taka, the Bengali translation of rupyakam. Of all these countries, the smallest denomination is the 5 Indian rupee note, with a face value of approximately 10 US cents, while the largest is the 100,000 Indonesian rupiah note, with a face value of US$9.41.