China digital currency: US ‘worried’ as it falls ‘behind the curve’ in race for financial technology innovation
- The People’s Bank of China have been conducting experiments and tests of its sovereign digital currency for more than five years
- The Biden administration has finally shown support for research into the viability of a digital US dollar for the first time
China’s rapid development of its sovereign digital currency, the so-called digital yuan, is causing the United States to worry that it could fall behind in the race for financial technology innovation, analysts said.
The digital yuan is one of the most advanced central bank digital currency (CBDC) initiatives in the world, with the People’s Bank of China having been conducting experiments and proceeding with tests for more than five years.
And its potential success could not only mean a superior representation of central bank money to strengthen China’s domestic economy, but it could also increase international currency competition that could threaten the dominance of the US dollar, analysts added.
“The US has been behind the curve. [But] even now the [US Federal Reserve] and Treasury are getting worried about the Chinese creating a digital currency and having it replace the US dollar as a global reserve currency,” said Nouriel Roubini, professor of economics at New York University’s Stern School of Business.
Creating a digital dollar would be a defensive move against the digital yuan. But it’s taking the US too long to make this decision if it wants to beat other countries
The US dollar currently accounts for 60 per cent of global foreign exchange reserves, well above the yuan’s 4 per cent, according to the International Monetary Fund. The US dollar’s share as a global payments currency also stood at 38 per cent in January, compared to the yuan’s 2 per cent, SWIFT data showed.