Macroscope | Bit by bit, central bank digital currencies like China’s will eat into US dollar hegemony
- These CBCDs, which will soon include the Russian rouble, are likely to finance a good deal more bilateral trade, thus weakening the US dollar’s role in trade
- While the dollar will still carry weight as a transaction currency in which countries invest their international reserves, the balance of power seems destined to shift
Digital currencies could erode the “exorbitant privilege” which the US enjoys from the dollar being the world’s main reserve currency, and thus also reduce its power to print money, accumulate national debt and run up trade deficits. As International Monetary Fund managing director Kristalina Georgieva put it recently, “The history of money is entering a new chapter.”
This is true, although many people still see the story as one of private cryptocurrencies versus official digital currencies, instead of looking at the geostrategic implications. The issue of cryptocurrencies versus national currencies is certainly important and central banks are focusing on it is because cryptocurrencies are rightly seen as a threat to the domestic and international monetary order. But central bank digital currencies are of a different order of importance.