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The Renminbi Poses No Threat to The Dollar



According to Eswar Prasad, a senior fellow of Brooking Institution and a professor of Trade Policy at Cornell University, the China digital Yuan will not affect the US Dollar. The professor believes that even though the China Digital yuan will manage to enhance the renminbi’s role as an international payment currency, it will have no effect on the US dollar status as the dominant currency internationally.

China needs to strengthen the Yuan first

Edward Prasad further stated that, for the Chinese government to strengthen the adoption of the China Digital Yuan, it should continue reforming the country’s financial markets and remove restrictions on capital flow. In this way, the government will manage to globalize China’s Central Bank Digital Currencies and the national cross border payments system. 

In an opinion piece that was published by Project Syndicates, Prasad pointed out that the renminbi has had gains in the last few years. The renminbi has been used as a means of payment as well as a reserve currency. According to him, the significant gains can be attributed at the expense of the Euro and British Pound. He stated that the International Monetary Fund had included the renminbi to the four existing currencies in the Special Drawing Right baskets and weighed it at 10.9%. This was at the expense of the Euro, the Pound, and the Japanese yen, but not the Dollar.

 The Peoples Bank of China manages the renminbi exchange rate. However, foreign investors have doubts about the Peoples Bank of China’s policies when it comes to renminbi’s exchange rate. Prasad states that this might not be an issue for the developing countries that have solid trade and financial links with China. According to him, these countries might start to settle transactions directly to the national currency and easily adopt the digital Yuan as soon as it is officially launched.

China leading digital currency race

China has been ranked among the first countries to roll out a central bank Digital Currency. On the 14th of August 2020, China Commerce Ministry announced its plans to expand its trials of the digital currency and the Peoples Bank of China will lead the pilot program. The Ministry said that the trials will start in the wealthiest regions, this includes metropolises like Beijing, Tianjin as well as Hebei provinces. There are no reports on when the pilot program will begin, the China Commerce Ministry plans to complete the policy framework by the end of the year 2020.

Image by tookapic from Pixabay



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