China’s digital currency plans against the Dollar will backfire badly.
The world is understanding how problematic it can be if the US keeps unilaterally sanctioning countries and overuse its monopoly of dollar currency. China is optimistically looking at this and using its centralised bank-led digital currency push, it wants to replace the dollar monopoly with Chinese digital currency.
However, one thing Beijing always forgets in its grand schemes is the complex intricacies that can destroy its plans. This time too, the Chinese miscalculation that other countries will choose Chinese digital currency instead of developing their own, is a major miscalculation that will backfire badly.
Beijing is likely to use dissatisfaction with the inefficiencies of existing cross-border payment channels to bolster support for its vision of lower-cost alternatives based on CBDCs as central banks across the world consider the dangers and benefits of issuing central bank digital currency (CBDCs). If achieved, such agreements might allow Chinese companies and their trading partners to minimise their reliance on the US dollar for cross-border transactions and avoid payment channels that the US government can block for national security reasons.
The digital renminbi (or e-CNY), Chinese sponsored digital currency, is already being built to meet these goals. The People’s Bank of China declared in a white paper published in July 2021 that the digital renminbi is “ready for cross-border use.”
China’s plans will backfire.
China has its ambitions of making the Yuan a global currency and displacing the US Dollar. So, it does not fancy a decentralised system that would not allow any national currency to monopolise the global financial system.
Also, China itself would not have fancied the crypto-currency system because of the high level of decentralisation and anonymity offered by the technology. China, being a totalitarian regime, does not want to lose regulation and control over financial transactions which is why it started opposing Bitcoin and other crypto-currencies.
Meanwhile, China is also pushing its allies to dump crypto-currencies. It wants its allies to adopt the digital Yuan as an alternate to the crypto-currencies and an attempt to bypass the US Dollar-dominated global financial payments system.
China has been using its leverage with its allies to adopt the digital Yuan. It has already started considering cross-border digital Yuan payments. Till now, the digital Yuan is in the initial stages of development and predominantly restricted to China’s boundaries.