How China’s Central Bank Digital Currency will help Renminbi to challenge dollar
Improving the convenience of cross-border payments in Yuan is becoming an important aspect of the BRI. Most BRI-countries utilize the US Dollar as an international alternative currency, regardless of how the BRI-loans are denominated. Now private actors, amongst others JP Morgan and Facebook, are working on their own digital currency. China has its own Central Bank Digital Currency (CBDC), and it seems that the urgency to implement this in cross-border transactions has increased. This could favour the position of China on the financial market and as its own position as borrower and producer of goods.
Digital currencies are becoming forces to be reckoned with, nowadays. The usage of these currencies depends heavily on the stability of existing currency that it is linked with, e.g. US Dollar, Euro or a basket of currencies. In a way the digitization of the Yuan provides an opportunity to bypass "the Western banking system".
China is already denoting the BRI-loans in Yuan. It is not unimaginable that Chinese service providers use their soft power to persuade non-Chinese customers to utilize the CBDC, as Facebook intends to do with Libra. This could increase China's circle of influence significantly. In turn, this could implicate that the competition between the U.S. and China as a trade partner will increase even more.
The usage of digital currency also provides privacy-issues for the user. Providers not only offer the currency, but also a digital wallet. This means every step of the transaction is monitored. It is not clear at the moment how the privacy of the user will be protected. Now, banks monitor transactions for compliance purposes once the amount of the transactions surpasses a certain threshold, to prevent money-laundering and funding terrorism. It is not clear yet how regulators are going to tackle these issues.
The Chinese Social Credit System could be exported to a degree. Thus, allowing China or any providers of such currency to use their soft power to persuade foreign users (individual or company) to act in a certain manner or refrain from certain actions.
A. Cikmazkara
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