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Digital Yuan Will ‘Hardly Put a Dent’ in USD Dominance, Says Expert

Tim Alper
Last updated: | 2 min read

China’s forthcoming digital yuan rollout will not pose a threat to American dollar dominance, says a leading economist – although the Middle Kingdom has already “leapfrogged” the West when it comes to digital payment infrastructure and innovation.

Source: Adobe/nespix

In an opinion piece published by Project Syndicate, Indian economist Eswar Prasad, a Professor of Trade Policy at Cornell University and a senior fellow at the Brookings Institution, wrote that the Chinese central bank digital currency (CBDC) “will hardly put a dent in the dollar’s status as the dominant global reserve currency.”

However, Prasad conceded that the digital yuan could “enhance the renminbi’s role as an international payments currency” if Beijing streamlines the token with its (largely blockchain-powered) “cross-border payments system,” so long as the “government continues to reform the country’s financial markets and remove restrictions on capital flows.”

But whatever progress the digital yuan makes, he opined, would likely come at the expense of other international fiats, rather than the USD.

He wrote,

“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 added that no matter how technologically sound the digital yuan proves to be, foreign investors will still remain wary about the idea of investing too heavily in the RMB, considering how tightly the central People’s Bank of China (PBoC) has traditionally regulated its currency.

And no matter what the USA has been through in the past few years domestically, on the international financial scale, markets still have paramount faith in the greenback.

He concluded,

“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 not clear whether it can debut in the second half of the year. Meanwhile, Chinese firms have been observed to use blockchain technology in international trade deals.