Chinese Official Digital Currency Looks Beyond Boundaries

The Chinese have been the fastest on the draw when it comes to a state sponsored digital currency. For much of 2019 and early 2020, the debate was on how the digital yuan, would really interact outside the boundaries of China. Many analysts concluded that, the state owned digital currency would have limited circulation within the nation. 

China kept its CBDC project on schedule even as the COVID-19 pandemic rampaged over 100 countries across the globe. As we publish this report in mid-June 2020, the Chinese digital yuan is going through pilot test runs in Shenzhen and a few other places in China. The ambitious project got an international flavor when the Chinese announced that, retail giants like Starbucks and Subway were willing to be included in the test run. 

In the backdrop of these happenings is the Facebook Libra, a newly morphed version of the original Libra project. The Chinese see the new Facebook plan of having multiple Libras, each linked to the currency of a specific nation – as a move to deliver a digital (US) dollar. This has generated a degree of apprehension in China and it now seems that, new digital currency parameters are being unveiled. 

Recent meetings have centered around, building a basket of digital currencies. This the Chinese believe would loosen the grip of the US dollar on international trade. To begin with, we know that the South Korean won, the Chinese yuan, the Japanese yen and the Hong Kong dollar – would be part of the ‘basket’. Keep in mind that these, would be digital versions of those currencies. Each currency would be given a weightage, depending on a set of economic parameters. All related issues would quite obviously, be discussed within the group of nations mentioned above. 

As the US makes its moves and seriously debates the launch of the digital dollar, the crypto scenario in China is being closely tracked by the Americans. In the face of such bold moves from the Chinese, it might appear that the US with its digital dollar would be on the back foot. Reality could be different and this, could pose a few challenges for the Chinese. 

The COVID-19 pandemic has shown China in bad light. Many nations believe that the Chinese reacted way too slowly when, the coronavirus started spreading in the Wuhan region of China. In simple words, China is being blamed for the massive loss of life that the pandemic has resulted in at the global level. This sentiment could help the US gain the support of many nations. 

Economic downturns are a direct result of measures taken by governments to stop the spread of the COVID-19 virus. Almost every nation would be strategically planning, its route to economic recovery. The Chinese move to create a basket of digital currencies, is one such attempt. It will take a few months or up to a year, to see the result of these international efforts.  

 

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