The Fed’s interest rate hike, along with US-European sanctions stemming from the Russian-Ukrainian war, have made developing countries worry that the hegemony of the US dollar will affect the stability of their own and international financial markets.
Christopher C., professor of political economy at Chamanade University, USA. Christopher McNally pointed out in an online forum of the East-West Center, a US think tank, that the US is China’s top three trading partners, and US dollar assets account for a large share of funds at China’s foreign exchange reserves Sanctions, expulsion from SWIFT , or freezing of foreign exchange reserves, therefore, actively develop the digital renminbi.
Christopher C., professor of political economy at Chamanade University, USA. McNairy. pictures online.
McNairy believes that there are many advantages to issuing the digital renminbi by the central bank On the one hand, it can accelerate the internationalization of the renminbi, improve the autonomy of the currency, and reduce the dependence on the US dollar; on the other hand, the digital renminbi can facilitate the supervision and tracking of the central bank, although digital technology O virtual money, but unlike blockchain, this currency does not use decentralized technology. As for other benefits, it includes low cost, high efficiency, and a reduction in counterfeit banknotes, For example, Eastern European companies export to China and switch to digital renminbi payments, which can save 10% of costs transactions, and the benefits are significant.
Currently, the digital renminbi pilot has expanded from the original “10 + 1” in China to 15 provinces and cities, a total of 23 regions. The central bank revealed in mid-July that by the end of May, 4.567 million merchant shops supported digital payments, and the cumulative digital RMB transactions were about 264 million, with an amount of about 83 billion yuan. McNairy believes it will be expanded to the entire country in the future. At that time, the central bank will be able to grasp all the cash flows in the country in real time, and it will be easy to trace money flows, illegal money laundering and suspected illegal business activities, and it will also be able to monitor pressures and risks’ the financial system in real time, and fully understand the major risks. Analyze data, prevent risk early.
As for whether the digital renminbi can end the hegemony of the US dollar, McNairy maintains a wait-and-see attitude. Although many people agree that the hegemony of the US dollar is on the wane, and digitization can help the renminbi to expand the market share of the international payment system, the US dollar still accounts for 60%, which is difficult to achieve in the short term.
Article in The Economist. Screenshot from The Economist official website.
The Economist has a different view, arguing that rather than replacing the dollar as the world currency with the yuan, the Chinese government seems to prefer to spend time on other, more urgent tasks, such as establishing a set of convenient trade partners, A payment system that is difficult to block in the United States.
For China, the development of digital yuan is more strategic than commercial. US sanctions against Russia have fully demonstrated that Western powers can kick foreign banks out of SWIFT at any time, and the US can ban its financial institutions from carrying out transactions with sanctioned countries, making it impossible for banks in that country to settle payments in US dollars. Digital RMB payments do not use the US dollar or SWIFT, and can completely bypass commercial banking institutions.
However, The Economist warned that the US could theoretically ban any entity that wishes to retain access to the US clearing system from using it, forcing the world to choose between the US dollar and the yuan digital. Some analysts believe that the United States can limit the influence of digital currency by punishing physical companies that use digital currency.
Regardless of whether the digital renminbi can challenge the dominance of the US dollar, the future of the world will be the coexistence of multiple international currencies. Professor from the University of California, Barry Eichengreen, pointed out in “Irrational Privilege: The Rise and Fall of the US Dollar and the Future of Currency” (Irrational Privilege) in 2011 that the international reputation of the United States is not as good as irresponsible international monetary measures, Make countries others full of doubts about the dollar. With the evolution of the global political and economic situation, the future world will be a world where multiple international currencies coexist, and the traditional foundation of the monopoly privilege of the US dollar is gradually being eroded.
