This reflection has been projected by Shri Shrish Pratin Pattalwar, a qualified Mechanical Engineer, a budding entrepreneur and a geopolitics buff, on the article, ‘Will China’s Digital Currency Break the Dollar’s Monopoly and its Implications for India’ written by Capt PK Yaduvanshi, published in the Indian Naval Despatch Winter 2021 Edition (pp 101-115).
It cannot be doubted that we are witnessing the rehashing of history in Europe with the Russia-Ukraine conflict and its cascading impact on the world economy has been nothing short of seismic. As pointed out by the author, the US has wielded its hegemonic sword in the economic sphere since end of the Second World War and the Bretton Wood institutions have helped it consolidate the American dollar’s reach over far corners of the world. As such, it came as a surprise to many when the economic sanctions on Russia spectacularly backfired and revealed an almighty chink in the American armour. Instead of crippling the Russian economy, the sanctions have created havoc in developing and least-developed economies, many of whom are US allies and partners.
China, the subordinate superpower, sees an opening for itself and rightly so. Since the days of Deng Xiaoping, China has seen nothing but exponential growth and prosperity. Today, with an $18.5 trillion GDP, it continues to log an astonishing 6% yearly growth rate. The author says that if historical evidence is to be relied upon, then the life span of a reserve currency is no more than 100 years and as such time is ripe for a transition away from the US dollar. China is best placed to take advantage. This sentiment has been echoed consistently by experts across many platforms.
Personally, this talk of an impending demise of the US-led system seems a bit premature for the simple reason that the world economies are much more integrated and interconnected than before and the American dollar is one of the binders which cements these relationships. As the author points out, for any currency to become a standard, a large and growing domestic economy, substantial and open capital markets, and effective institutions to manage the economy and markets are a must. China has made rapid strides in all these areas, but it falls short of transparency and trust which is a must when markets and investors look at long-term stability. Xi Jinping, with a Maoist rather than Deng Xiaoping-type approach to the Chinese economy, may yet prove to be another impediment to continued Chinese prosperity.
With the democratization and the exposure offered by the digital commons, the economic system will invariably move away from the US domination but it will be a long and drawn-out process as the US will not give up its cash cow easily. The arrival of the Central Bank Digital Currencies (CBDC) is a step in the right direction vis-à-vis leveraging Blockchain Technology. Cryptocurrency, another digital product based on Blockchain, has proven to be a mirage and is rightly being banned by Central Banks across the world.
India, as an emerging superpower, at this juncture finds itself in a bit of a predicament. Although exports have rebounded, India remains primarily an importing country with both the US and China as her major trading partners. As such, she cannot do away with her dependence on the dollar nor can she substitute her trade deficit with China overnight. In this context, I concur with the author when he says that India should work with like-minded countries to promote innovative technologies and help each other become truly ‘Atmanirbhar.’
