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A significant trend that is increasingly taking root across the world is the introduction of digital currencies. Central bank-issued digital currencies, popularly known as CBDCs, are now a reality. While not many governments have launched their CBDCs, China has taken the lead by introducing the digital yuan. If you are interested in Digital Yuan, you may want to consider What is Yuan Pay Group?
The digital yuan is in the early development stages. Currently, the domestic market is mainly using this digital currency. However, the government intends to make the digital yuan an international currency. And this is already happening since many international transactions use the digital yuan. It will likely grow, making the digital yuan widely acceptable and usable internationally.
Digital trading is taking root worldwide, with more trade taking place on digital platforms like Brexit Millionaire. As digital trading becomes more popular, the demand for digital currencies like the digital yuan grows.
Traditionally, the global financial and economic system has mainly depended on the US dollar. The US dollar hegemony came into effect with the development of the Bretton Woods System. And this made the US the international reserve currency. Since then, global economies and financial systems have intertwined with the US dollar.
Strong Position of the US Dollar
The US dollar dominates the global economy and financial markets. The Chinese currency, the RMB, is far weaker than the US dollar. The RMB does not account for 5% of the global reserve currency for international usage. Introducing the digital version of the RMB does not seem to have any significant implication on the position of the US dollar.
While the digital yuan could eventually impact the US dollar’s current hegemony, this may not be in the foreseeable future. Several factors explain this. First, the digital yuan does not command so much confidence globally. Many people view China with suspicion in the international arena because of the control of the government.
The government introduced the digital yuan. From an international perspective, this may seem like another government-sponsored strategy to exert China’s influence on the world. Such negative perceptions will not be easy to shed off, considering China is still involved in trade wars with the US.
US digital Dollar
The US is considering introducing the digital dollar, the digital version of the US dollar. China’s introduction of the digital yuan could have motivated the US to consider introducing its CBDC to compete against it. If the US introduces the digital dollar, which is very likely, the possibility of the digital yuan taking on the US dollar becomes leaner.
With its CBDC, the US makes it more difficult for the digital yuan to represent a significant threat to the US dollar. Since the US dollar is the most popular currency internationally, introducing the digital version would be easy and even strengthen the dollar’s position. CBDCs present advantages over fiat currency, such as reducing costs and making transactions faster and seamless.
Conclusion
The digital yuan could represent a potential threat to the US dollar. However, this is still a new introduction, and it may take years before it can take on the dollar. The US dollar is already firmly intertwined with global economies and financial systems, and it is difficult for the digital yuan to challenge this position. The digital yuan is not yet ready to take on the dollar for various reasons. But only time will tell since China is keen on developing and making this digital currency acceptable globally.
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