The increasing use of the yuan for international financial transactions, such as Bolivia adopting it for imports and exports, can enhance China’s global influence in several ways. First, it strengthens China’s economic ties with other countries, boosting trade and investment opportunities. Secondly, it can reduce China’s reliance on the US dollar, giving it more control over financial stability and reducing exposure to fluctuations in the dollar’s value. Moreover, as more countries in Latin America and beyond adopt the yuan, it can lead to the establishment of a network of nations relying on the Chinese currency. This would potentially create a larger market for yuan-denominated assets, encouraging more countries and businesses to hold yuan reserves. Additionally, the wider usage of the yuan can increase China’s role in international finance and trade, potentially challenging the dominance of the US dollar in global markets.
This could lead to China having more influence in setting financial rules and regulations, and ultimately strengthening its position as a global economic player. The increasing use of the yuan may also have geopolitical implications, especially in the context of SinoIndia relations. India might need to carefully assess the impact on its economic and strategic interests. How the increasing use of the yuan impacts India will depend on how effectively New Delhi navigates these changes, adapts its economic policies, and takes advantage of new opportunities while managing potential risks.As more countries around the world use the Chinese yuan for trade, India may take several actions to address potential geopolitical implications and protect its economic and strategic interests. India can work on building stronger trade and economic ties with countries that continue to use the dollar or other currencies for trade, reinforcing partnerships and diversifying its economic relationships.
India may consider diversifying its foreign currency reserves to reduce reliance on the US dollar and include other stable currencies to mitigate risks associated with yuan-based trade. India can encourage countries to use the Indian rupee for trade transactions, offering incentives or establishing currency swap agreements to facilitate bilateral trade in domestic currencies. India can participate actively in regional economic blocs and organisations to promote trade within the region, creating economic alternatives and reducing dependence on yuan-based trade. It is crucial for India to closely monitor geopolitical developments related to the yuan’s increasing usage and assess how it may impact the regional and global economic landscape. Focusing on strengthening India’s domestic economy can increase its resilience to external economic influences and improve its ability to navigate potential challenges arising from yuan-based trade. India can also evaluate investment opportunities in countries using the Chinese yuan, considering potential benefits and risks associated with such engagements.
But one thing is clear. India will need to adopt a proactive and cautious approach, leveraging its diplomatic and economic capabilities to navigate the changing dynamics brought about by the increasing use of the yuan in international trade.