As the Chinese government tackles decentralized cryptocurrencies and seeks to launch its own central bank digital currency (CBDC), the digital yuan, industry watchers believe the move could pave the way for the launch of CBDC to CBDC exchanges. At the same time, the digital yuan and other CBDCs that will be deployed by other countries could harm the dollar’s standing in global finance in the long run.
The forecasts were proposed by Yaya Fanusie, Adjunct Senior Fellow at the American think tank Center for New American Security (CNAS) who studied the digital yuan project. Talk to the blockchain analytics company Channel analysis for the purposes of its latest report on the Chinese market, analyst noted the digital yuan is unlikely to become a threat to the dollar in the near term, as it will be some time before Beijing sufficiently promotes its use outside of China.
So far, 35 Chinese banks have integrated digital yuan wallets into their mobile apps, while 94 other banks aim to access the Chinese CBDC through a new platform, Shanghai Securities News reported.
However, the deployment of the CBDC is likely to have major long-term effects on global payments.
“I think they will try to make deals with other countries where they allow the exchange of CBDC to CBDC. Think of it as an atomic exchange of CBDCs, ”Fanusie said.
As part of this type of arrangement, according to the report, A in China could send digital yuan to B in Malaysia, with a currency exchange occurring automatically so that B receives digital Malaysian ringgits and “without any of the parties do not have to touch its non-native motto “.
These transactions would not be based on the SWIFT system, he said.
“If they became the norm, people outside of the United States would have less need to hold US dollars,” the report says, Fanusie adding that: “It is not a risk for 2022, but probably more for 2032. and beyond . “
Fanusie also sees the digital yuan as part of a larger data-literacy war in which the United States risks falling behind.
“So far, China has been more innovative than the United States with fintech. If this also happens with blockchain technology, the US economy risks missing out on the next wave of data-driven innovation, ”the analyst said.
Rather than simply creating their own CBDCs to mitigate this risk, Fanusie felt that while a US CBDC project should not be ruled out, policymakers in Washington should think beyond a digital dollar and promote the innovation in the fields of blockchain, fintech and monetary policy. by organic growth and not by a top-down approach.
Promotion of innovation could be boosted by partnerships between federal agencies and US universities to create a sandbox for the development of blockchain-focused projects.
“This is how the United States led the development of the Internet. There was a directive for the universities to create a computer network system that the military could use. This infrastructure was then harnessed for much wider civilian use and unlocked a revolution in business innovation, ”the researcher concluded.
By Chainalysis, one thing is clear:
“China appears determined to develop a digital yuan for immediate home use, and possibly future international use. Improving monetary policy and financial supervision of Chinese citizens appear to be the project’s short-term goals, but in the long term, the proliferation of the digital yuan alongside other CBDCs could jeopardize the status of the US dollar in as a global reserve currency. “
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