The current situation is undergoing an unprecedented transformation. Surprisingly, such a crucial step has been taken in the internationalization of the renminbi. At the same time, India seems to have suffered a major shock in the midst of this change, and what is going on? The seemingly inconspicuous country of the Maldives has suddenly announced that it will adopt the renminbi as the settlement currency for imports in the near future. The Chinese side has not yet made a clear reaction to this news, while the Indian side has already felt a strong shock.
Some people may be puzzled by this incident, thinking that what does the adoption of renminbi settlement in such an obscure small country have to do with India, and what does it have to do with us ordinary people with a monthly salary of 3,000? However, if we think deeply, we will find the deeper meaning. This decision of the Maldives is undoubtedly a strong impetus to the internationalization of the renminbi, and also shows the international community's recognition of China's economic strength and the credibility of the renminbi. And India, as a country that competes with China in a number of areas, is naturally concerned about this.
For us ordinary people, although it may not seem to be directly related to our daily lives, in fact, the process of RMB internationalization will have a profound impact on us. It will not only enhance China's position in the global economy, but also bring us more convenience and opportunities. Therefore, we should pay attention to the development of this process and understand the changes and challenges in order to better grasp the opportunities ahead.
When discussing the complexities of international relations, we cannot simply draw conclusions. In the case of the relationship between India and the Maldives, we must analyze the factors behind it in depth. We need to understand why India is so sensitive to the situation in the Maldives. Geographical location is a key factor – India is the closest regional power to the Maldives. There is an opinion that India considers the Maldives to be part of its sphere of influence, especially given the high dependence of the Maldives on India economically and militarily. India not only has significant economic investments in the Maldives but even has a military base in the country. Therefore, we can infer that India and the Maldives are very closely linked, and this close connection is not only reflected in bilateral relations, but also has the potential to have repercussions on a broader level of international politics and economics.
India, a mystical eastern power, has always had an ambitious heart. On the one hand, it has a deep desire to be at the table of the five permanent members of the United Nations, hoping to make a voice on the highest level of global politics, and on the other hand, it is committed to promoting the internationalization of the rupee in the hope of increasing its international influence and even competing with the US dollar.
However, at this critical moment, its younger brother, the Maldives, suddenly turned back, which was undoubtedly a major blow to India, like a salary from the bottom of the kettle, which seriously affected India's plan.
One might wonder why the Maldives would take such a big risk to turn against India, after all, wouldn't it be a benefit to work closely with India and accept the rupee as a currency of trade? The rupee's position in the international market is far from being on par with mainstream currencies such as the US dollar, and its path to internationalization is still fraught with bumps. What's more, the performance of the rupee in the international market has even been jokingly called by some people the smell of big curry, which is undoubtedly a great derogation of its value.
The Maldives may have seen this shortcoming of the rupee, believing that it would be better to find other partners with more prospects than to be closely bound to India. This is undoubtedly a profound lesson for India, reminding it that it needs to be more pragmatic and cautious on the road of pursuing its dream of becoming a great power.
The most essential attribute of currency is undoubtedly that it is used as a medium of exchange for goods, and if India wants to promote the rupee as an international settlement currency, what is the first premise? Undoubtedly, India needs to have enough goods to attract other countries to use the rupee for purchases. Let's take a look at how India is doing in this regard.
In 2023, India's total exports reached 760 billion, which means that India exported 760 billion worth of various goods to the world last year. At first glance, this may seem like a significant number, but digging deeper reveals a significant problem. About 40 percent of the $760 billion in total exports is earned from services exports. In other words, India's performance in physical merchandise exports is not as good as the data seems.
This fact undoubtedly poses a huge challenge to India's efforts to promote the rupee as an international settlement currency, and if other countries want to use the rupee for settlement, they need to have a good reason to buy Indian goods in the first place, and India's current relative weakness in physical goods exports has greatly reduced the interest of other countries in using the rupee.
Therefore, if India is to realize its dream of internationalizing its currency, it needs to do more to improve its ability to export real goods. Only when India can offer more competitive physical goods to the world can it really attract other countries to settle in rupees, thus driving the process of internationalization of its currency.
Export of services, as the name suggests, refers to the income that Indians earn by providing services to foreigners. For example, the outsourcing of telephone operators to Indians in the United States is a typical example of service exports. However, this service is not a scarce resource, and switching to Indian rupees for settlement just to save the cost of a few operators is clearly not attractive enough.
If we dig deeper into the structure of India's exports, we can see that India sells only about $430 billion a year of physical goods to other countries, excluding human services. What does this mean exactly? It's less than half of the total exports of China's Guangdong province. The sheer scale of exports from Guangdong, China's largest economic province, is evident in the fact that if all countries switch to rupees, India will face a very awkward situation: it lacks enough goods to attract other countries to use its currency.
History also serves as a lesson for us. For example, certain countries have tried to internationalize their currencies but have failed. There are many reasons for this, but the lack of sufficient export goods and economic strength is undoubtedly one of the key factors, and India needs to make more efforts to improve its physical commodity export capacity and strengthen its economic strength if it wants to realize its dream of currency internationalization.