The consensus concerning China’s upcoming Central Bank Digital Currency (CBDC) seems to be that it will threaten the Dollar’s status as the global reserve currency. However, a prominent Chinese policymaker is trying to allay fears of that happening.
Zhou Xiaochuan, the former governor of the People’s Bank of China has explained that China’s digital yuan wouldn’t aim to usurp fiat currencies, the South China Morning Post (SCMP) reports.
Just Helping With Payments
Zhou had reportedly made the comments at a conference On Sunday. Speaking on the government’s efforts with the digital yuan, the policymaker reportedly explained that it would function as just another alternative payment method. Along with private payment systems and fiat currencies, the yuan will improve settlements and remittances.
The pace of development with the digital yuan has drawn concern from many financial experts. Most have called on the U.S. government to get in the CBDC race now, as the digital yuan could threaten the Dollar’s global hegemony. However, as Zhou notes, the CBDC won’t jeopardize the Dollar in any way. The former central bank chief pointed out that the narrative has grown over the past few months, and China should avoid that perception.
Zhou drew comparisons to Facebook’s Libra stablecoin, claiming that the digital yuan won’t replace traditional currencies. While the digital yuan could have a place in trading or investments, it won’t aim to challenge any fiat currencies.
Instead, he pointed out that the Chinese government wants to use the digital yuan to enhance transparency and accountability in the payments space. The asset will also bolster cross-border payments and foreign exchange – areas where China seems o be lagging behind.
Digital Yuan is Now a National Security Threat
While Zou appears to be painting the digital yuan as a friendly asset coming on to the scene, feathers in the United States are being ruffled. Last week, the Washington Examiner reported that John Ratcliffe, the National Intelligence Director, had sent a letter to the Securities and Exchange Commission (SEC) over the national security threat that is the digital yuan.
Per the report, Ratcliffe offered to have some of his staff brief SSEC Chairman Jay Clayton on the possible national securities issues that could arise from China’s upcoming digital yuan. Ratcliffe also highlighted the country’s dominance in mining as a potential problem.
The Dollar has been the global reserve currency for decades, with most international trade being settled in the greenback. Thanks to the Dollar’s status, the Federal Reserve can be more flexible when printing money since there is a considerable demand for the Dollar outside the United States. So, the chances of hyperinflation are much lower.
With a successful digital yuan, China could threaten the Dollar on international trade. The fact that the CBDC will most likely be pegged to the yuan means that the latter could also see greater demand than the Dollar in the coming years.