Indian Rupee cannot be internationalized. To be an international currency, a currency have to represent a big economy. Indian GDP is mere 3.25% of global GDP. Only USD Euro Yuan can be truly global currency. It is because USA represents 24% of global GDP, China represents 19% and EU represents 17%. Indian option of using Rupee in global transactions is simply a waste of time and mere big talk. That's why even after making Rubble Rupee deal, Indian companies are trading with Russia in Yuan.
GDP is most important. The larger GDP a country has, the larger production value and asset value it owns. A country's currency buys that same country's production and assets only. The larger production value and asset value a country has the more value its currency can buy. It means Chile and Nigeria can trade with USD, Euro and Yuan only because by possessing these currencies these countries can buy production and assets from USA, EU and China. Being largest economies each almost one fifth of global GDP, USA, EU and China have the have highest probability of offering best products and assets to Chile and Nigeria.
Hence the more GDP a country has the higher will be the demand for that country's currency. Now question comes, can the country defend its production and asset from external aggression? Here comes the importance of military power. But again, military power of a country is dependent on that country's GDP especially manufacturing and technological strength.
Now EU is a collection of many countries having little military power and hence Euro stands no chance to be used at same rate as USD is used in global market. So Euro is always less used compared to USD though their GDP was similar most of times since 2000. China has exceeded US GDP in terms of PPP (quantity) and about to exceed US GDP in nominal terms (quality both perceived and real) between 2024 and 2028.
China is one country and has military potential to dominate at least its neighbourhood. So Yuan is indeed a potential challenger to USD in the long run. But they will happen in steps.
First China has to show its capability to dominate its neighbourhood. Second economic and military compulsions will force USA to allow China to dominate Chinese backyard. Thirdly China's neighbours will start using Yuan in global transactions. Gradually Yuan usage share in global market will rise and that of USD and or Euro will fall.
By 2035, the global economy will see equal usage of USD and Yuan. In between 2022 and 203, three currencies to dominate global transactions namely USD Euro and Yuan. It may happen that Euro lost out. This is because EU is mostly economically stagnant since the last two decades, EU is union of many nations which can break anytime and Russia-Ukraine war is weakening EU production to the core. So by 2035 we may find global market mainly dominated by USD and Yuan only. Any other currency can have minor role in Multi-polar world. In 2022, Indian Rupee cannot be used in global transactions as nobody will find good product or asset in Indian market.
Author: Saikat Bhattacharya
