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- The Chinese CBDC may threaten the US dollar’s sovereignty as the global reserve currency.
- China is currently a leader in the bank-regulated digital currency realm.
- US officials have noticed the potential threat and have begun working out strategies.
Cryptocurrencies have entered the mainstream economy in several parts of the world. Public tokens such as Bitcoins and Ether tokens are versatile, albeit being a tad unregulated in most countries. Central Bank Digital Currencies are virtual tokens that the government issues, making them fall entirely within regulatory protocols; however, it is not distributed or anonymized as other popular cryptos. China is rapidly pursuing the notion of CBDCs, and it may have a significant effect on the world economy.
US dollar’s hegemony
Currently, all global oil trades and supply chains’ transactions are made primarily with US dollars, putting America in a sweet spot as it has plenty of the global reserve currency. China did try to make a dent in its monopoly once before by conducting oil trades with Euros, which, however, backfired quickly due to various reasons. CBDCs are more versatile and adaptable, leading to much greater flexibility and potential as an economic weapon. With China rapidly pursuing Digital Currency Electronic Payment (DCEP), a system for people to interact with digital yuan, tensions run high within the US administration.
Long-term threats
As the system is not yet fully developed, the dollar is in no immediate danger. A report by Bloomberg states that officials from the Treasury, the Pentagon, National Security Council, and the State Department are making a coordinated effort to understand the possible effects of CBDC on US foreign economic policy. It is also uncertain whether virtual tokens could be used despite imposed sanctions. On the other hand, China has ramped up efforts to test its new system in several ways, including lottery-themed competitions and airdropping the tokens. Doing so would naturally enable China to be better equipped with contingency plans, too, in case of any unforeseen circumstances.
Even though still nascent at the time, this new Chinese policy could lead to a split verdict on global reserve currencies, which would lend a significant blow to the US foreign economic policies.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
