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How can the Chinese digital Yuan currency be a threat to the US dollar?

Chinese digital Yuan currency be a threat to the US dollar

China wants to introduce a digital yuan currency called ERMB in 2022. People moving to China in 2022 may have to buy or sell in this new digital currency. It will be a currency that will not be visible and you will not be able to hold it in your hand like notes and this is not an imaginary thing. | Chinese digital Yuan currency

At a time when every country in the world is struggling to cope with the coronavirus epidemic, China is busy launching a pilot project on the digital Yuan. Last month, China’s central bank, the People’s Bank of China, began working on it in four major cities: Shenzhen, Chengdu, Suzhou, and Xi’an.

Under the project, a portion of government employees’ salaries will be paid in digital yuan. In addition, 20 private companies such as Starbucks and McDonald’s are participating in the experiment. If successful, the Chinese government will release it nationwide during the 2022 Winter Olympics.

However, this will be done in phases and may take several years. In fact, work on the project began in 2014. China is moving very fast to implement it. There could be three main reasons for this: the escalating trade war with the United States, the continued accusations by the United States and Western countries against China over the coronavirus, and the readiness to launch Facebook’s digital currency this year.

Big Change

The introduction of digital yuan is said to be something that could change the global balance. It is part of China’s ambitious plans to eliminate American influence and emerge as a powerful nation in the 21st century.

Experts say its successful use could lead to a new political and economic system in 10 to 15 years. Dr. Faisal Ahmed, an expert in Chinese affairs at the Ford School of Management in Delhi, says India and the United States are working on their respective digital currencies under the names Lakshmi and Digital Dollars, respectively. But so far they are far from the truth. | Chinese digital Yuan currency

US Dollars vs. Digital Currencies

Currently, the Chinese dragon has left Indian Lakshmi far behind. But according to experts, the uncrowned king of the currency world is also threatening the dollar.

“The dollar is far more expensive than its original value, given the trillions of dollars in debt owed to the US Federal Reserve,” says Alok Choriwala, a Mumbai-based thief. A new currency is certainly welcome, but its global acceptance will take a long time.

Parveen Vishesh is a portfolio manager at Singapore-based Modular Asset Management and trades in currencies around the world.

“The digital yuan is definitely a big step towards distance from the US dollar,” he said. The US dollar is currently the world’s currency and has been so since the fall of the gold standard in the early 1970s.

He adds that the escalation of the conflict due to the US-China trade war and now the Corona epidemic is a threat to the dollar. However, this change will take time due to the absence of any other and immediate alternative. The world must keep an eye on Chinese actions.

The current value of the US dollar can be gauged from the fact that in 2019, about 90% of international financial transactions were transacted in US dollars. In comparison, the Chinese yuan accounted for only 2% of global payments and reserves. | Chinese digital Yuan currency

On the other hand, more than 60% of the world’s reserves are in US dollars. India’s 487 billion foreign exchange reserves are also in US dollars. China’s treasury also has تین 3 trillion worth of assets in US currency.

Dr. Faisal Ahmed believes that China can use it in many ways that will enhance its reputation.

“China can use this currency to provide incentive packages to other countries for geographical and political gain, as well as to be included in the Belt and Road (BRI) project from Central Asia to the Arctic region,” he said. It can be used for investment in countries.

Currently, the effects of the US dollar and its importance mean that the United States will continue to dominate the world’s political and economic affairs. For example, sanctions against Iran, Russia, North Korea, and other countries are possible because of international trade and banks’ reliance on the US dollar. | Chinese digital Yuan currency

Deutsche Bank released a special report on digital currencies in late January this year, suggesting that the Chinese digital yuan could change the balance of global power.

“China, with the help of its central bank, is working on a digital currency that can be used as a soft or hard power tool,” the report said. In fact, if companies doing business in China are forced to adopt digital yuan, it could certainly undermine the value of the dollar in the global financial market.

“As the United States promoted the dollar in the early twentieth century, so the Chinese government is now working hard to internationalize the renminbi (RMB, China’s official currency, the yuan),” the report said. Is doing From 2000 to 2015, the share of RMB in China’s business transactions increased from zero to 25%.

Deutsche Bank suggested that the digital yuan and similar digital currencies could not eliminate cash but could eliminate third parties such as credit cards.

“Unlike other payment methods, it can be used to pay without an internet connection,” says Parveen Vishesh. It’s like real cash but in the digital world.

“The success of the digital yuan will depend on how quickly it is adopted by the general public, retailers, corporations, governments, and other countries,” he added. But the emerging currencies as a force in the virtual world include Facebook’s Libra and the Digital Yuan, as well as many other virtual currencies, and many more.

Bitcoin already exists in the market and its popularity is growing. India has banned cryptocurrencies but the Reserve Bank is seriously considering digital currency Lakshmi. | Chinese digital Yuan currency

Facebook Libra vs. Digital Yuan

“Currently, the mainstream digital currencies include Facebook’s Libra and the Chinese government’s digital yuan,” the Deutsche Bank report said. Facebook has about 2.5 billion users, one-third of the world’s population. With a population of 1.4 billion, Facebook and China have the potential to move digital currencies into the mainstream.

But the main difference between other digital currencies and the digital yuan is that China’s central bank will issue digital yuan, which will gain acceptance and increase its confidence. All other digital currencies are decentralized and are not subject to any regulation.

“The digital yuan is a state-sponsored currency different from other currencies such as the Libra,” said Dr. Faisal Ahmed. It will also have political implications. The use of digital yuan, for example, will help countries like North Korea avoid US sanctions.

The idea of ​​Lakshmi, India’s digital currency, came to the fore in 2014 and the talk of digital yuan started in China in the same year. But for Indian digital currency Lakshmi, we will first have to wait for the report of several committees on the issue.

“India is promoting the digital vault while China is about to launch a digital currency,” said one analyst.

“The digital yuan should not be seen as a threat, but as a revolution in digital networks,” he said. India has led to a digital revolution at the local level through the use of AEPS (Aadhaar based payment system) and UPI (Unified Payment System). | Chinese digital Yuan currency

Advantages and disadvantages of digital currencies

The advantages are that it cannot be duplicated, transactions can be expedited, international transactions will be cheaper, everyone will be able to use them and support for referrals, smuggling and extremist activities will be stopped.

And the downside is that people won’t trust it anytime soon, it won’t have access to the poorest sections of the population and it will depend on the digital vault. Experts say that as this technology develops, the benefits of digital currency will increase.

“It takes a long time to build people’s confidence in any system,” says Alok Choriwala. The US dollar has been around since 1770. Its popularity began to grow from the time of World War I and it became the world’s best currency until World War II. Everyone trusts the dollar and everyone values ​​it

But if America’s dominance in the world diminishes, another power will take its place, and China is far ahead in this race. | Chinese digital Yuan currency

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June 2023

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