April 2021: The yuan’s share of global payments and central bank reserves is still only about 2%.
China’s digital yuan will not topple the dollar
April 30, 20212:37 AM +08
China’s planned digital yuan will not dethrone the dollar, a top Securities and Exchange Commission official said on Thursday, citing the growth of so-called stablecoins backed by the greenback.
The world’s biggest central banks, including the People’s Bank of China and U.S. Federal Reserve, are stepping up work on issuing digital cash, eyeing improvements to payment systems and looking to pre-empt the rise of cryptocurrencies. read more
Why Should We Care About Digital Currencies? China | Opinion
BONNIE GLICK AND ERIK BETHEL
ON 4/28/21 AT 6:00 AM EDT
The world seems awash in cryptocurrency fever. Bitcoin prices have risen more than fivefold since the pandemic started, creating a wave of interest in digital assets. But this crypto-sideshow has been diverting our attention from the main issue—the fact that Beijing has spent the last eight years creating a digital version of the Yuan, and through it, seeks to control its citizenry, export digital authoritarianism and threaten the U.S. dollar as the world’s reserve currency.
Central banks worldwide have been discussing digital currencies for several years, but few countries have been as singularly focused on the issue as China. Over the past decade, Chinese paper bills and coins have all but disappeared. They’ve surrendered to WeChat and Alipay QR codes on smartphones. The Chinese digital Yuan project—also referred to as the Digital Currency Electronic Payment—is the next iteration of this trend, and it’s been years in the making.
It seems that Chinese President Xi Jinping envisions a transformed world order dominated by the PRC commercially, militarily and politically. The PBoC’s rollout of the digital Yuan is only the latest in a series of steps meant to achieve that vision. China could become the first country to move to digital money, and by so doing would confer enormous power on the world’s largest authoritarian government. We should expect that the Chinese Communist Party will use its digital currency to surveil all Chinese citizens’ financial transactions, 24/7.
The digital Yuan will also help China enforce its “social credit” system, a database already in existence that monitors individual and corporate behavior in real time. Those who comply with Beijing’s social credit system get rewarded. Those who don’t get punished through travel limitations or getting barred from jobs or schools. Equally concerning is that China’s digital currency architecture has the potential to be exported abroad to dictatorial regimes that similarly appreciate the role of digital money as an instrument of surveillance and control. The digital Yuan is as much a geopolitical weapon as it is a monetary tool.
The digital Yuan gives Beijing the offensive capability to challenge the U.S. dollar’s dominance in cross-border payments. Since the end of WWII, the dollar has remained the global reserve currency. Almost all commodities, from iron to soybeans to oil, are priced in dollars. The Bank of International Settlements estimates that more than 80 percent of foreign exchange transactions are conducted using the greenback, compared to less than 4 percent for the Chinese Yuan. But Beijing is actively working to undermine the dollar’s dominance.
Take the Society for Worldwide Interbank Financial Telecommunication (SWIFT), for example. SWIFT is the preeminent global network used by banks and other financial institutions to transfer money around the world. In recent years, a division of the PBoC created a joint venture with SWIFT that seeks to direct all cross-border Yuan payments through China’s proprietary clearance and settlement system. Beijing has also been developing the “Multiple CBDC Bridge,” a project initiated by the Hong Kong Monetary Authority and the Bank of Thailand to implement a cross-border payments system based on distributed ledger technology. Thailand was recently joined by the United Arab Emirates. More countries may follow.
Finally, China has been steadily promoting trade in Yuan along the “Belt and Road Network,” an ambitious infrastructure program connecting China with more than 100 countries around the world. China’s predatory lending policies in these countries provide it with a unique advantage. It isn’t inconceivable that China could renegotiate its large loans to developing countries in Africa and Latin America in exchange for the settlement of commodities in digital Yuan instead of dollars. In short, evidence abounds that the ultimate goal of Chinese policy is to create a parallel payments network that slowly chips away at the dollar and elevates the digital Yuan on the world stage.
It’s an open question whether being the first to market a digital currency will be enough to win the Yuan global reserve currency status. Nevertheless, The main issue is clear. China is clearly leading the charge into a global digital economy. And it seeks to win. We should take heed.
Erik Bethel served as the U.S. Executive Director of the World Bank from 2017-2020. Bonnie Glick served as the Deputy Administrator/Chief Operating Officer of the U.S. Agency for International Development from 2019-2020. Both were unanimously confirmed for their roles by the U.S. Senate.
China needs big tech support for digital currency plan
Since 2014, the Chinese government has been working with state banks to create a digital currency.
This new digital Yuan will form an integral part of the governments’ effort to assert its dominance globally and rival the US Dollar as the reserve currency. Indeed, for this project to be successful, the government will need to have complete control over the economy and the private sector – including big tech companies.
The government has enlisted the help of JD.com and many other companies in the countries booming tech sector. JD.com, one of the nation’s largest online retailers, has recently announced that it will pay some of its employees using digital currency. Aside from JD.com, ride-hailing app Didi, online to offline service platform Meituan, and video streaming platform Bilibili have all begun to accept the digital Yuan for customer purchases.
China says it has no plans to replace dollar with digital yuan
China sought to allay fears it wants to topple the dollar as the world’s main reserve currency as Beijing makes bigger strides in creating its own digital yuan.
People’s Bank of China Deputy Governor Li Bo said the goal for internationalizing its currency is not to replace the dollar, and the efforts to create a digital yuan are aimed at domestic use.
“For the internationalization of the renminbi, we have said many times that it’s a natural process, and our goal is not to replace the U.S. dollar or other international currencies,” Li said on a panel at the Boao forum Sunday. “I think our goal is to allow the market to choose, to facilitate international trade and investment.”