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Amid aggressive US rate hikes, Chinese state researchers are floating the idea of a ‘liberating’ pan-Asian digital currency.
Chinese state researchers are currently mulling the idea of a Pan-Asian digital currency pegged to at least 13 indigenous fiat currencies. These include China’s yuan, Japan’s yen, South Korea’s won, and 10 other currencies that belong to the Association of Southeast Asian Nations (ASEAN) member states.
The Pan-Asian digital currency development is borne out of concern that US dollar dominance is growing globally. According to these Chinese government researchers, a common Asian digital currency would reduce the region’s reliance on the US dollar. In addition, this would also subsequently help foster and safeguard financial stability.
Chinese state researchers are betting big on the plausibility of a pan-Asian digital currency because they believe conditions are right for its establishment. Also, plans to enhance ASEAN regional monetary cooperation while eroding reliance on the greenback come amid a bigger picture. China is trying to consolidate its position as a world leader in digital currency development, and exert increasing global influence. This also comes amid threats of a financial decoupling of the East Asian country by the US government.
Speaking on the prospect of an Asia-wide digital token, Chinese Academy of Social Sciences researchers, Song Shuang, Liu Dongmin and Zhou Xuezhi, stated:
“More than 20 years of deepened economic integration in East Asia has laid a good foundation for regional currency cooperation. The conditions for setting up the Asian yuan have gradually formed.”
Adverse US Rate Hikes on Asian Forex Reserves Also Trigger Need for Regional Crypto
Chinese state researchers also mention the negative impact of aggressive US rate hikes on Asian foreign exchange reserves. This unsavory development has primarily occurred via financial market volatility. Providing further exposition, these state researchers explained:
“East Asian countries have long settled their trade in the US dollar, exacerbating currency mismatches and exchange rate risks. It was the trigger for the 1997 Asian financial crisis.”
During this ’97 Asian financial crisis, Malaysian Prime Minister Mahathir Mohamad first proposed a common East Asian currency. In 2019, Mohamad again insisted on the need to replace the US dollar with a common-denominating Asian digital token.
Reports also provide insight into the proposed Asian-centric digital currency’s relationship with each of the ASEAN currencies. The weighting for each could take cues from the International Monetary Fund’s special drawing rights, which is an international reserve asset.
Furthermore, distributed ledger technology backs the digital currency, thereby preventing the dominance of any one country. In addition, this underpinning also serves to neutralize obstacles to monetary cooperation in the region.
China Widely Expected to Take the Lead on Pan-Asian Digital Currency Initiative
China, the world’s second-largest economy, will most likely spearhead the proposed Asian digital currency. The East Asian giant has already conducted extensive tests of its own sovereign digital currency, the digital yuan (e-CNY). Digital yuan pilots reportedly took place some months back in 23 major cities, primarily for small retail payments. By the end of August, it had seen acceptance among 5.6 million merchants and 100 billion yuan ($13.9 billion) worth of accumulative transactions.
The e-CNY does not currently have a set timetable for its launch. Furthermore, according to China, digital yuan data will have a limited monitoring scope.