Can Digital Yuan Challenge US Dollar's Dominance in International Finance?

[RiazHaq]

Can Digital Yuan Challenge US Dollar's Dominance in International Finance?

News, analysis and opinions about India, Pakistan, US, Canada, Europe, Mid East, South Asia, Silicon Valley, High Technology, Economy, Politics, World

www.riazhaq.com

China's central bank is testing its digital currency in several major Chinese cities. The chairman of US Federal Reserve has recently confirmed that the US Central Bank is working on digital dollar. The State Bank of Pakistan announced in 2019 that it was developing a digital currency. It seems that the popularity of Bitcoin has triggered serious worries of loss of control of the official financial systems among the central bankers around the world. China's substantial lead in digital currency could put it far ahead of the US in the future of global payments and financial settlement. It could eventually displace the US dollar and provide China with the immense global financial power that the US currently enjoys.

Digital Yuan

Central Bank Digital Currency (CBDC):

What Is a Central Bank Digital Currency (CBDC)? Investopedia defines it as a digital currency that "uses a blockchain-based token to represent the digital form of a fiat currency of a particular nation (or region)". A CBDC is centralized; it is issued and regulated by the country's Central Bank. Unlike decentralized cryptocurrencies like Bitcoin, a CBDC would be centralized and regulated by a country's monetary authority.

Motivations for such currencies are many, but the key one is to maintain control of the national and global finance. Another worry is that the use of unregulated digital currencies like Bitcoin could enable serious domestic and international crimes. It could also make tax evasion easier and hurt governments' ability to support public expenditure on education, healthcare, physical infrastructure, public safety, national defense and other priorities.

Digital Yuan:

The People’s Bank of China, the Chinese Central Bank, is testing its e-yuan digital currency in Shanghai, Chengdu and other major cities. It has filed more than 100 patent applications for its digital currency. Reports indicate that the experiments are going smoothly, and soon people will have the option of downloading a government-issued digital wallet. Unlike commercial payment processors such as WeChat Pay and Alipay, the official Chinese version will be equivalent to an account at the central bank with the same guarantee as hard cash, according to The Economistmagazine.

China is far ahead of of the rest of the world, including the United States in the development of a central bank-backed digital currency (CBDC). This could put it far ahead in the future of global payments and financial settlement. It could eventually displace the dollar and provide China with the immense global financial power that the US currently enjoys.

China has set up a partnership with SWIFT, the Society for Worldwide Interbank Financial System, that manages the global system for cross-border payments, through its digital currency research institute and clearing center. SWIFT is a major vehicle for the United States to enforce its unilateral sanctions on countries like Iran, North Korea and Venezuela.

Digital Dollar:

US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have confirmed last week that they are working on digital dollar as a high-priority project.

US Treasury Secretary Janel Yellen has been quoted by the media as saying: “I gather that people at the Federal Reserve Bank of Boston are working with researchers at MIT to study the properties of it. We do have a problem with financial inclusion. Too many Americans really don’t have access to easy payment systems and bank accounts. This is something that a digital dollar, a central bank digital currency, could help with. I think it could result in faster, safer and cheaper payments.”

Digital Rupee:

A top official of the State Bank of Pakistan, the nation's central bank, announced in April 2019 that the institution aims to issue a digital currency (Central Bank Digital Currency or CBDC) by 2025, according to media reports. Speaking at the launch of regulations of Electronic Money Institutions (EMIs), central bank officials said that EMIs will be non-bank entities to be licensed by the central bank to issue e-money for the purpose of digital payments. Pakistan's finance minister Asad Umar and the central bankers said they are targeting Pakistan's economy to go fully digital by 2030.

More recently, the State Bank of Pakistan launched Raast, a digital payment system. It is essentially a pipe that is intended to connect government and financial institutions with consumers and merchants with each other to process payments instantly at very low cost. Raast will be boosted by Pakistan government's decision to use it to pay salaries, pensions and pay welfare recipients under Benazir Income Support and Ehsaas Emergency Cash programs.

Raast digital payment infrastructure represents a great leap forward for the use of financial technology (FinTech) and financial inclusion in the country. It will also promote e-commerce in Pakistan. Undocumented economy poses a serious threat to the country because it creates opportunities for criminal activities and tax evasion. Raast is part of the government's effort to modernize payment systems and document the nation's cash-based informal economy.

Summary:

Central Bank Digital Currencies (CDBDs) are gaining momentum with the talk of digital yuan and digital dollar. Motivations for such currencies are many, but the key one is to maintain control of the national and global trade and financial systems. If successful, these new currencies and associated payment systems could challenge the global financial power of the United States and fundamentally transform banking as we know it.

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Haq's Musings

South Asia Investor Review

COVID19 Pandemic in Pakistan

State Bank of Pakistan Plans Digital Currency By 2025

Raast Digital Payment System

Brothers From Rural Pakistan Teaching AI to American High Schoolers

Pakistan's Computer Services Exports Jump 26% Amid Coronavirus Lockdown

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Can Digital Yuan Challenge US Dollar's Dominance in International Finance?

News, analysis and opinions about India, Pakistan, US, Canada, Europe, Mid East, South Asia, Silicon Valley, High Technology, Economy, Politics, World

www.riazhaq.com

 

[WinterFangs]

Will it be 1:1 with their normal currencies, such as how digital dollar is? My dad was telling me to buy some digital yuan but I see no point buying it if it’s 1:1, since it won’t give any profit.

 

[RiazHaq]

There's a common perception that the United State is abusing its extraordinary financial power to arbitrarily punish countries through its unilateral financial sanctions. This power stems mainly from the fact that the US dollar is the main international reserve and trade currency. It allows US to control multi-lateral financial institutions like SWIFT, World Bank, IMF and FATF. Many countries, including major US allies in Europe, are now looking to find alternatives to SWIFT. This has been specially true since former US President Donald Trump existed the JCPOA (Joint Comprehensive Plan of Action) agreed among the 5 permanent members of the UN Security Council (P5) plus Germany. Here's an excerpt of a recent New York op ed by Peter Beinart:

"By deluding themselves about the extent of America’s might, they are depleting it. A key source of America’s power is the dollar, which serves as the reserve currency for much of the globe. It’s because so many foreign banks and businesses conduct their international transactions in dollars that America’s secondary sanctions scare them so much. But the more Washington wields the dollar to bully non-Americans into participating in our sieges, the greater their incentive to find an alternative to the dollar. The search for a substitute is already accelerating. And the fewer dollars non-Americans want, the harder Americans will find it to keep living beyond their means."

Can Digital Yuan Challenge US Dollar's Dominance in International Finance?

China's central bank is testing its digital currency in several major Chinese cities. The chairman of US Federal Reserve has recently confir...

www.southasiainvestor.com

 

[nahtanbob]

What can I do with the digital yuan ? that alone determines its fate

 

[Kruelwrld]

It's most likely bitcoin or another cryptocurrency will be the majority. The whole point of cryptocurrency and blockchain is to be decentralized. Having it controlled by a government is the opposite of its intent.

 

[RiazHaq]

#China Charges Ahead With a National #Digital Currency. Some economists said China’s digital currency would also make it easier for the renminbi to compete with the #US dollar as a global #currency because it can move internationally with fewer barriers. https://www.nytimes.com/2021/03/01/technology/china-national-digital-currency.html?smid=tw-share


The electronic Chinese yuan is now being tested in cities such as Shenzhen, Shanghai and Beijing. No other major power is as far along with a homegrown digital currency.

Annabelle Huang recently won a government lottery to try China’s latest economics experiment: a national digital currency.

After joining the lottery through the social media app WeChat, Ms. Huang, 28, a business strategist in Shenzhen, received a digital envelope with 200 electronic Chinese yuan, or eCNY, worth around $30. To spend it, she went to a convenience store near her office and picked out some nuts and yogurt. Then she pulled up a QR code for the digital currency from inside her bank app, which the store scanned for payment.

“The journey of how you pay, it’s very similar” to that of other Chinese payments apps, Ms. Huang said of the eCNY experience, though she added that it wasn’t quite as smooth.

China has charged ahead with a bold effort to remake the way that government-backed money works, rolling out its own digital currency with different qualities than cash or digital deposits. The country’s central bank, which began testing eCNY last year in four cities, recently expanded those trials to bigger cities such as Beijing and Shanghai, according to government presentations.

The effort is one of several by central banks around the world to try new forms of digital money that can move faster and give even the most disadvantaged people access to online financial tools. Many countries have taken action as cryptocurrencies such as Bitcoin, which has recently soared in value, have become more popular.

But while Bitcoin was designed to be decentralized so that no company or government could control it, digital currencies created by central banks give governments more of a financial grip. These currencies can enable direct handouts of money that expire if not used by a particular date and can make it easier for governments to track financial transactions to stamp out tax evasion and crack down on dissidents.

Over the last 12 months, more than 60 countries have experimented with national digital currencies, up from just over 40 a year earlier, according to the Bank for International Settlements. The countries include Sweden, which is conducting real-world trials of a digital krona, and the Bahamas, which has made a digital currency, the Sand Dollar, available to all citizens.

In contrast, the United States has moved slowly and done just basic research. At a New York Times event last week, Treasury Secretary Janet L. Yellen indicated that might change when she said an American digital currency was “absolutely worth looking at” because it “could result in faster, safer and cheaper payments.”

 

[cloud4000]

The whole point of crypto currencies like Bitcoin is to bypass government control, especially its ability to print money at will. In fact, it’s getting more popular by the day.

Governments the world over are trying to co-opt cryptocurrencies through either regulation or parroting its technology.

Cryptocurrency is becoming the new gold: a place of safety in a volatile world.

 

[Old School]

Decentralized cryptocurrencies such as Bitcoin will replace USD and Gold as the new form of central bank reserve currency all over the world. That will become the new reality. The bottom line is to remove any government from regulating an international currency; not just the US government. No government should be allowed to arbitrarily print unlimited money to destabilize the world.

 

[HttpError]

Bitcoin and Ethereum are the future. No matter how much you hate them they are here to stay.