What is India’s best bet?

Yet, signs of Beijing’s long game have begun to emerge. How it fares will test not just its resolve, but whether a fully convertible currency is necessary for global dominance.

Misguided US sanctions after the 2022 outbreak of war in Europe have catalysed Chinese efforts. Despite its economic slowdown, China’s trade heft is aiding its push for settlements in its own currency. Over 30% of its trade is already yuan-based.

Its banks have been lending abroad in yuan instead of dollars to make yuan payments more acceptable for its imports, even as it bills more of its exports in yuan to crush exchange-rate risks and stay off the grid of dollar flows that’s perilously exposed to punitive US clamps.

Globally, many banks have signed up for its CIPS alternative to the Swift system of cross-border transfers. It also has a digital yuan, though its global success may depend on headway made by mBridge, a platform for conversions of central bank digital currencies (CBDCs) that was incubated in Hong Kong by the Bank for International Settlements (BIS) in alliance with the central banks of China and others.

In October 2024, the BIS gave up running mBridge, but it remains firmly backed by Thailand, the UAE and Saudi Arabia, apart from China. Note the context: as a cheap and instant means of payment, CBDCs could easily come to dominate the future.

While the US remains wedded to the status quo, its dollar has the distinct advantage of full convertibility, with capital allowed to flow in and out of its economy freely. In contrast, Beijing tightened its capital controls in 2015 to curb outflows and seems bent on trying to globalize its yuan without easing them much. This restricts the overseas liquidity—and appeal—of yuan assets.

For now, Beijing’s strategy appears to rest on granting friendly foreign entities access to its bond market, where money can be raised at very low rates of interest, given its easy-money policy amid near-zero inflation. Moreover, its central bank has given swap lines to over 30 other central banks so that they don’t fear a yuan crunch. As none of this will make the world at large pile into yuan assets, America’s privileged low-cost access to global credit—in spite of its fragile finances—looks safe for now.

Two of China’s bets could come good: first, that US neglect of global interests will tip the dollar into a long but hard-to-arrest decline; and second, that as money evolves with technology, a digital currency could ascend to the top. Over time, both these trends could plausibly make space for India’s own e-rupee to join the action.

While a few moves have already been made to globalize the rupee, our thin slice of world trade makes its worldwide use hard to promote. Hence, if the sun starts setting on the US dollar’s reign, a safer bet would be to revive Keynes’ basic idea of a global trade currency.

Whatever digital form it takes, we can insist its charter be set by consensus and its control kept equitable and democratic. For the credibility of our tech proposals, we could make the e-rupee evolve into a distinctive CBDC that upholds the ideals of democracy. Perhaps privacy features can give it an edge over the coinage of a surveillance state. The dollar looks wobbly, no doubt, but the e-yuan’s ascent isn’t a done deal.