China’s impending digital Yuan deployment will not act as daunting to American dollar supremacy, says a chief economist – even though China has already “overtaken” the West when it attains to digital payment foundation and modernization.
In an opinion piece advertised by Project Syndicate, Indian economist and Professor of Trade Policy at Cornell University as well as a senior fellow at the Brookings Institution, Eswar Prasad, addressed that the Central Bank Digital Currency (CBDC) of the Middle Kingdom “will barely put a dent in the dollar’s status as the dominant global reserve currency.”
Even if Prasad acknowledged that the digital Yuan could “enhance the renminbi’s role as an international payments currency” if the nation’s capital, Beijing streamlines the token with its (often blockchain-powered) “cross-border payments system,” so continued as the “government continues to reform the country’s financial markets and remove restrictions on capital flows.” Whatever development the digital Yuan necessitates, he explained that it would likely come at the cost of other global fiats, instead of the U.S. Dollar.
“Any global gains the renminbi has made in recent years, both as a means of payment and as a reserve currency, have mostly come at the expense of currencies such as the euro and the British pound. Even when the IMF added the renminbi to the four existing currencies in the SDR basket and gave it a 10.9% weighting, it was mainly the euro, the pound, and the Japanese yen that gave way, not the dollar.”
The professor also incorporated that no matter how technologically sound the digital Yuan proves to be, international investors will continue to be wary about the concept of investing too heavily in the RMB, acknowledging how strict the central People’s Bank of China (PBoC) has traditionally governed its currency. No matter what the USA has been through locally in the past few years, markets still have predominant faith in the greenback on the global financial scale.
He gathered that,
“The United States’ economic dominance, deep and liquid capital markets, and still-robust institutional framework mean that the USD still has no serious rival as the world’s leading reserve currency.”
In the recent news, Beijing has made a digital yuan pilot expansion plan U-turn, claiming that “the situation is ‘much complicated'” and it is still unclear whether it can debut in the second half of the year. Meantime, Chinese corporations have been observed to use blockchain technology in international trade deals.
The Mainland purportedly test the Digital Yuan in Hong Kong.
As stated by Andy Mukherjee, a Bloomberg Opinion columnist, China’s strong probability testing the Digital Renminbi beyond its borders in Hong Kong and Macau. The Chinese government’s plans to test the digital CBDC is an active effort to provide a system that will bypass the U.S. Sanctions for officials.
These rumors were already denied through the official Xinhua news agency, according to SCMP. However, Chinese officials had already made the statement during a press conference the day before, so these efforts to change the narrative are seen as manipulative tactics designed to bend the truth.
It would still depend on whether they provide the Digital Renminbi to Hong Kong and Macau, it may cause a significant strain on the rapidly deteriorating relationship between China, and the U.S. Proper timing and positioning of the CBDC in Hong Kong will provide more options for people that are currently being sanctioned, mostly pro-security law officials.
With international banks not willing to risk getting blacklisted, the CBDC may provide an additional platform for lending, mortgages, and payments. It is unlikely that Hong Kong citizens will be willing to share financial data with the CCP. However, they might be tempted by better than average offers on interest rates.
Yuan-based transactions are on the rise in the region exceeding 1.1 trillion yuan in 2019, which is 55% higher than in 2014 when the Yuan was at its ATH. If successful, this experiment may prove to be the spark necessary to establish the Digital Renminbi on the international stage.
Hong Kong is a vital player in global finances in China. Any significant increase of yuan utilization (digital or otherwise) would succeed in enhancing the value project and usefulness of the currency. With the CBDC eventually making a global debut, it stands to challenge both the U.S. and Euro.
Middle Kingdom Test Digital Yuan with their Ride-Hailing App
Bloomberg’s report implies that China is progressing for the first real test for the state-sanctioned digital currency, Yuan, via the Didi Chuxing app, an Uber-equivalent in China.
As per the unnamed source, the ride-hailing application blends the digital Yuan as a payment method, enabling citizens to use DRMB to pay for rides and possibly more in the future.
The organization is led by the People’s Bank of China, together with Soft Bank, to create what is being internally called the Digital Currency Electronic Payment virtual legal tender.
There is no conclusive statement on when this system will become operational, and the PBOC did not acknowledge to inquiries made by Bloomberg journalists.
The wide-spread recognition of a blockchain-powered future for China started with Xi Jinping’s speech last year, and since then, the nation has worked tirelessly to build the infrastructure for the digital Yuan.
This move by the Chinese government is preceded by theoretical simulations during their pilot program in April earlier this year. The goal of simulations was to provide Beijing with insights and gauge the country’s financial system’s level of authority should it be implemented across the entire country. The pilot was limited to four major cities in China.
Features about countrywide implementation continue as a mystery. However, we don’t anticipate to see fast outcomes considering the USD 27 trillion payments industry in China. The digital Yuan rollout is likely to happen in stages, similar to the current “Didi” test.
Didi will be the first real stress test for the blockchain network and will define the Chinese government’s course of action.