The race for control of the digitization of international finance is just beginning but it’s a race China seems determined to win.
China is poised to roll out its closely-watched and long-awaited digital yuan, designed to help the country keep pace with, and control, the digitizing local and global economy.
Now, China’s central bank has said the country needs to break U.S. dollar dominance and internationalize yuan, with the rights to issue and control a digital currency set to become a “new battlefield” of competition between countries.
“China has many advantages and opportunities in issuing fiat digital currencies, so it should accelerate the pace to seize the first track,” China Finance, a magazine run by the People’s Bank of China (PBOC), wrote over the weekend, adding that in this “new battlefield” China needs to establish a new payment system network to break the the U.S. dollar’s monopoly.
The details of the China Finance article were first reported by Reuters in Shanghai.
In July, a former head of the Commodity Futures Trading Commission (CFTC) warned the U.S. is falling behind digital currency projects elsewhere in the world.
The PBOC magazine also revealed China’s digital currency research institute had filed 130 patent applications related to digital yuan as of April—when it was reported China’s digital currency electronic payment system would begin trials in four cities ahead of a pilot at future Winter Olympics venues.
Interest in central bank digital currencies (CBDC), including a potential digital dollar, has accelerated in recent months, with the coronavirus crisis and the need to quickly distribute cash to Americans resulting in a provision for a digital dollar included in an early draft stimulus bill this year.
China’s looming plans for a digital yuan, along with Facebook’s libra project, have thrust the digitization of payment systems into the limelight. Many central banks around the world are experimenting with CBDCs that draw on bitcoin’s blockchain technology.
While the U.S. has yet to move on a digital dollar, its potential implications have generated extensive debate and speculation around how a fully digital currency might impact the commercial banking industry.
Last month, former governor of the Reserve Bank of India, Raghuram Rajan, said he expects bitcoin and Facebook’s libra cryptocurrency to eventually be “in competition” with central bank digital currencies.