Why China’s Digital Currency will not Change the Global Dominance of the USD
China recently revealed plans to launch a central bank digital currency. This announcement has continued to elicit reactions from many in the world of finance. Some experts have even suggested that China’s digital currency could leap from the USD and become the globally dominant currency. However, this is not likely to happen.
It will be good for Domestic Control
Rather than dominate the global world of finance, China’s digital currency will most likely give the nation more control over its domestic monetary policy. China revealed that the digital currency would run on a two-tier system. The central bank is hoping that this system ensures it reaches the masses much faster. Its connection to the central bank will ensure that all protocols related to money laundering, terrorist financing, and fraud, apply to it. All domestic laws relating to cash management would also apply to it.
Despite the hype, there is not much difference to the existing system. After all, the two-tier system is how money enters the economy today. While China has made it clear it wants to internationalize the yuan, those plans have never involved the digital currency. In fact, China has made it clear the coin would only be used domestically. Claims of internationalizing the digital yuan have mainly come from western media sources.
Another hindrance is the law. Many nations globally have laws that prevent transactions from being settled in anything other than the national currency. Even if it has plans to internationalize the digital currency, it would still face an uphill battle of acceptance. Most retailers and major stores prefer to be paid in the local currencies of the nations where they operate.
China’s leaders are well aware of this issue. As a result, it is unlikely they would attempt a global push for acceptance of the digital yuan. The most likely reason for the coin is domestic control. One clear sign of this is that China has already banned trading in all digital currencies in the nation. China wants to avoid any foreign influence over its domestic financial system. The digital yuan would essentially give China more insight into how transactions occur inside the nation.
Published at Sat, 09 Nov 2019 22:32:00 +0000
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