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The Biden administration is advertent on the threats the digital yuan poses to the US dollar and its status as the world’s economic power. This follows a heightened effort from China to launch its CBDC early next year.
China has for years been developing its CBDC and is in its final stages. As we reported, the People’s Bank of China is already testing the digital currency across different cities in partnership with public and private banks. The Treasury, State Department, Pentagon and National Security Council officials are said to be looking into the potential threats posed on the US dollar by the issuance of a digital yuan.
According to Chinese state officials, the digital yuan is set to be rolled out across the country in the upcoming Winter Olympics in Beijing. However, a lot on how it will work, including how it will be distributed, remains vague.
Beijing Defends the Digital Yuan
One of the main reasons the second-largest economy is looking to launch its CBDC is to curb US influence mustered from the global use of the dollar. Through the dollar, the US has been able to influence business practices and even government policies across the globe. Through the digital Yuan, and given recent global influence by China, it could finally replace the dollar with a faster, cheaper and more transparent cross-border settlement system. Another key concern is that US sanctioned countries could be able to bypass sanctions through the digital yuan.
China has maintained that it is not looking to use the dollar to undermine the dollar or help sanctioned countries. On its part, it has assured the US that the digital Yuan is aimed to reduce banknotes. Additionally, help reduce cryptocurrencies’ influence, and boost economic growth through an efficient electronic payment system.
China’s governance model has much power held by the legislature which is pushing for the CBDC launch. This is aimed at an economical takeover. However, China has recently proposed global rules to govern digital currencies.
Clash of the Digital Titans
The intensified efforts have rattled the hierarchy in the Biden administration. As China moves forward with its effort to roll out in less than a year, the US is putting China under the microscope. But it is said that the Biden administration has no immediate plans but will continue to monitor the situation.
While government departments are lurking in the night, in broad daylight, Congress is discussing the possibility of a digital dollar. Congress has in recent months involved both Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen. Both have indicated that it is not only feasible but something that the US should be looking into very carefully. Powell earlier this year further stated that the US doesn’t need to be first but needs to get it right.
It is unlikely the US will be able to stop China from launching the digital yuan. Once this is out there, the dollar will immediately begin losing its influence and value. The only really feasible way to keep China at bay is by counter-attacking with a digital dollar.