The digital yuan is on the march. The People’s Bank of China (PBOC) is beginning to distribute this digital currency to various cities in small amounts, thus becoming the first major central bank distributing (CBDC). The impact of this type of money on the economy is unknown, but the studies carried out so far speak of multiple benefits and threats. In the case of the digital yuan, beyond the domestic impact, some experts point to the predominant position of the dollar in the monetary system.
There are many central banks that are studying launching their digital currencies in the face of the emergence of other private payment alternatives and the collapse of the use of cash. Central banks want to maintain control over money and guarantee monetary sovereignty under their jurisdictions.
“The use of in the next decade,” says Zhu Min, president of the National Institute of Financial Research at Tsinghua University, so central bank-backed digital currencies will become more common globally. However, its implementation can generate several changes, especially if the project is well built and has the support of a large central bank. Something like that is behind the digital yuan.
Kenneth Roggoff: “The People’s Bank of China is far ahead of other major central banks in developing its public digital currency”
JG Collins, director of the economic consultancy Stuyvesant Square Consultancy, assures in an article published in Seeking Alpha that this is “the first digital currency launched by a great economy and and other digital currencies… the digital yuan can change everything”.
A digital currency issued by a central bank is supported by that institution and the exchange rate of the physical currency behind it, in this case the Chinese yuan. The e-Yuan is intended to be the digital substitute for cash, so it is in principle safer than bank money which risks ‘disappearing’ during a financial crisis, if banks start to run (massive withdrawals of money). ) and bankruptcies. An asset that is just as safe as cash, but which is also digital (does not take up space), can be easily paid with and stored in the central bank’s balance sheet, can be very attractive to everyone.
However, the e-Yuan has some peculiarities. China would be exploring the possibility that this digital money could have an expiration date in order to stimulate consumption and investment at certain times of economic weakness. This is something that has not been explored in other advanced digital currencies, for example.
However, the economic power of China does not stop growing, so the yuan could continue to gain weight in the world and more after the launch of the e-Yuan. “When the situation stabilizes, and China and the US and their allies fight for control of digital payments, bitcoin holders will be left holding the bag with the same tulips that Dutch speculators did 500 years ago, with no one willing to buy. “, says this expert. However, the e-Yuan has a major disadvantage compared to bitcoin: rather the other way around, China will take advantage of this digital currency to increase control over its citizens.
Fear in the US
In addition, “the e-Yuan threatens the entire global financial payment system and, in particular, the exorbitant, economic and geopolitical privilege that the dollar has as the world’s reserve currency,” says Collins. The latter is what worries the US and the Biden Administration, which are redoubling their efforts to understand the impact of the e-Yuan on the monetary system.
The Biden administration is keeping a close eye on the digital yuan, the currency. The stakes are high for the US economy and its global monetary dominance through the dollar. Some US officials, who have chatted with the Bloomberg agency, show some concern that the launch of this digital currency may be a new step to overthrow the dollar as the world’s dominant reserve currency.
The digital yuan has begun testing in various cities. China is serious about the doubts of other central banks, in addition to having the advantage of years of research, since the digital yuan plan was born in 2014. This gives many years of advantage. The European Central Bank, for example, has now begun to seriously assess the option of launching a digital euro that could take five years to arrive, while in the US there is not even a serious project yet. Officials from the US Treasury, the State Department, the Pentagon and the National Security Council are multiplying their efforts to figure out what the impact of this digital currency may be in the world, sources related to the matter have revealed to Bloomberg.
However, US officials believe that . This currency will not take over international finance overnight or dominate the current structure of the global financial system. However, American experts are eager to understand how the digital yuan will be distributed and whether it could also be used to avoid US sanctions, these sources have said on condition of anonymity.
The People’s Bank of China has launched test issuance of a digital yuan in cities across the country, so if nothing changes, the PBOC will be the first major central bank to widely issue a virtual currency (which circulates throughout the economy). Wider deployment is expected for the Winter Olympics in Beijing next February, which can be used as a kind of international showcase.
Although the digital yuan is a step further, Kenneth Roggoff, Professor of Economics at Harvard University, assures in an article published in Project Syndicate that “the dominance of the dollar may well be more fragile than it seems, because it is likely that the changes that will occur in China’s exchange rate regime will trigger a significant change in the international monetary order”. Among these changes, Roggoff also cites the digital yuan and the advantage that China has over other countries in terms of public digital currencies.
As revealed by Bloomberg, US officials are certain that China’s intention is not to use the digital yuan to evade US sanctions, according to people familiar with the matter. China plays big. The current dominance of the dollar in cross-border transactions gives the US Treasury the power to even reduce a country’s access to the global financial system. In addition to many other advantages related to the high demand for assets denominated in dollars.
Kenneth Rogoff believes that the reign of the dollar is now quite fragile in the face of the rise of China. “Furthermore, the People’s Bank of China is well ahead of other major central banks in the development of its public digital currency. Although currently purely for domestic use, the People’s Bank of China digital currency will ultimately facilitate international use of the renminbi, especially in countries that gravitate towards the eventual China currency bloc. This will give the Chinese government a window into the transactions of digital renminbi users, just as the current system provides the US with a similar wealth of information.” .
However, from China it has been insisted on several occasions that the intentions of the digital yuan are to replace a part of banknotes and coins, reduce the use of cryptocurrencies and complement the current electronic payment system managed by the private sector, dominated by Alipay. and Tencent. The PBOC has been working on the digital yuan, also called the e-Yuan, for years, having created a specialized investigative team in 2014. Time will tell if the US suspicions were well founded.
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