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Could a digital yuan dethrone the mighty US dollar?

China's digital yuan could have far-reaching impacts. Photo: Reuters.

The emergence of a blockchain-enabled digital yuan is said to have has set the cat among the pigeons in Washington. 

China has become the first major economy to issue a digital version of its currency and that has Fed chiefs in the US concerned that the dollar’s status as the world’s go-to reserve currency might be under threat.

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“Anything that threatens the dollar is a national security issue. This threatens the dollar over the long term,” Josh Lipsky of the Atlantic Council told the Wall Street Journal.

Nearly 90% of foreign-exchange transactions involve dollars and more than 60% of all global central-bank reserves are held in dollar-denominated assets.

But while China might have good reason to attempt to unseat the dollar as the world’s reserve currency, some don’t think a digital yuan will do that for them with most cross-border payments in trade or finance already digital. 


One observer also argued there’s little chance that a digital yuan will threaten the US dollar’s role as the global reserve currency because of the size and liquidity of US debt markets, the flexibility of the dollar’s exchange rate, laws that let capital freely enter and exit the country, and an independent judiciary and central bank.

They added there’s little chance China will adopt the sort of Western institutions that global investors look for to protect their savings.

The Federal Reserve is said to be studying the idea of a digital dollar but won’t move without first having the support of the American public and Congress.

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Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.


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