United States dollar dominance on shaky waters as China’s digital Yuan takes shape

Despite the COVID-19 pandemic China has not altered nor interrupted the development of its sovereign digital currency. The Asian financial giant is working towards the realization of its dream of becoming a global finance superpower. It has been reported that the People’s Bank of China (PBoC) is already carrying out trials in several cities including Shenzhen, Suzhou, and Chengdu.

China and the US are walking on eggshells following the long-lasting trade dispute. The Coronavirus outbreak poked more holes into the fabric. However, Beijing seems to be unbothered by the fragile relationship between the two nations especially with its desire to stay at the forefront of the emerging global digital payments technology and platforms. The initial plan of replacing a part of the paper money currently in circulation is still in place.

At the moment, the impact of a digital Yuan cannot be predicted. Banks will have to adjust to the change. It is apparent that the rivalry between the US and China could last longer and perhaps disrupt the global economy altogether.

Unlike, Bitcoin and other cryptocurrencies, China’s digital currency will not be decentralized. The digital Yuan will be under the control of the PBOC which will of course monitor and safeguard the economy against money laundering. Unfortunately, such control on a digital scale and platform could mean a breach of privacy.

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US dollar dominance could be threatened

China is getting ready with a loaded gun likely to take down the US dollar dominance. For instance, if China directed that all multinational companies (MNCs) doing business with it utilize the digital currency, then the impact on the dollar could be unfathomable. Meanwhile, American firms such as McDonald’s have been singled out as potential entities to trial the digital Yuan. Other countries could also prefer to deal with China’s digital currency, further denting the long-standing dollar dominance while at the same time, mitigating any sanctions. According to a recent report by China Daily:

A sovereign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level.