China Launches its Digital Yuan

October 13, 2020

Just for a moment, consider the following scenario: the US dollar collapses, global trade is now conducted in the Chinese Yuan currency, the Bretton Woods system no longer exists, and Google bends the rules to access the Chinese market. These changes to global geopolitical order would be beyond America’s ability to manage and/or control. A few years ago, this storyline would have been dismissed as too far-fetched. However, today it is very possible. This new reality demands the attention of everyone regardless of political orientation, economic status, or social ranking. 

 

In this argument, I provide a basic explanation about the expected rise of China’s currency and the inevitable death of the U.S. dollar. What will this mean for the future global economy and order? It comes on the heels of China’s launching the trial of its digital Yuan in the southern city of Shenzhen.

Recently, China's Central Bank (CBI) issued 10 million Yuan ($1.5 million) in digital currencies to 500 randomly selected users, a move seen by some as the country's first public test of the Yuan's digital payment system. The success of this trial will definitely allow China to internationalize its currency, and promote the Yuan as a competitor or alternative to the U.S. dollar.

 

China’s digital Yuan trial prompted a group of seven major central banks, including the U.S. Federal Reserve, the Bank of England, the European Central Bank, the Swiss National Bank, and the Central Bank of Japan to arrange for the launching of their own digital currencies, playing catch-up with China. As I argued in previous writings, China’s financial move is to not only free itself from the dominance of the U.S. dollar, but also enhance its global competitiveness and strong advantage during global negotiations. 

 

The Inevitable Collapse of the US dollar 

China’s implementation of the digital Yuan has two main objectives (a) significant improvements for the Chinese economy and (b) a bulwark against the U.S. financial dominance. It is my opinion that many countries will adopt the Chinese digital Yuan as it offers an alternative to the U.S. dollar which and now dominates the global financial markets system.  

 

Equally important, the digital Yuan allows China, and other countries who will adopt its currency, to circumvent sanctions, arms embargo, and money laundering regulations by providing an alternative to the dollar-based international payments system, now controlled by Western financial institutions.  

 

Not all this is happening in a vacuum. China’s expected rise over the United States, on the international order, and the global system is felt in every sector. In 2004, China’s economy was just half that of the United States. By 2014, its GDP was equal. With the current trajectory, by 2024 it will be fifty-percent larger. Look how China’s infrastructure continues to expand, including its railroad system of about 77,000 miles. China now has the world's largest rail system including a high-speed network that stretches more than 13,670 miles. China plans to more than double that over the next decade as part of its Belt Road Initiative (BRI). As a result, one argues that the necessity for China to introduce its digital Yuan is to eliminate the dominance of the U.S. dollar.  

 

Behind this speed, is a purpose driven leader and a government that works. The most ambitious and competent leader on the world stage today is Xi Jingping. He made no secret about what he wants. When he became president in 2013, he said his goal was to make China “Great again”. He chose his banner way before Donald Trump picked a similar version.

 

One sure thing: we are witnessing a China in 2020 that did not appear on the international stage 25 or 30 years ago. Today China’s global status has soared. Thus, the challenge that will shape our world is the seemingly unstoppable China. 

 

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