The dollar has been the worst hit in the last two years. Though a digital yuan has been advancing rapidly, China has not been able to make headway in its bid to internationalize the Yuan in the past months. According to the January tracking of currencies’ data, the Chinese Yuan was able to gain just 0.02 percent in the global market from December December. However, it has lost 0.10 percent in the two months.
Although the numbers are not that bad, this falls short of China’s result since 2009 when it decided to internationalize RMB. In August, the People’s Bank of China was confident that things would turn positive. Unfortunately, the continuous sanctions that the U.S. was imposing on Chinese businesses and officials at the twilight of Trump’s administration is likely to have weakened further acceptance of the Chinese Yuan, popularly known as the Renminbi. Ironically, the dollar also lost heavily to the euro in 2019 and 2020.
The Chinese Yuan falling despite rising in the value of CBDC
The fall of the Chinese Yuan from 2.07 percent to 1.88 percent in international payments underscores the currency’s weakened demand. However, the numbers are from SWIFT. Despite’s SWIFT’s importance in China’s interaction with other countries at the moment, the People’s Bank of China is relentless in its campaign for local financial institutions to dominate the country’s international payment system and compete against SWIFT.
The Chinese Yuan comes between the Honk Kong Dollar and the Swiss Franc as an international currency. Hong Kong is the one charged with the majority of CNY settlements globally. Disputes over Chinese violation of human rights in the specially administered region is likely to prolong the trade war.
China making a frantic move to expand the use of its currency globally
China is known to be making all it could to expand the usage of its currency worldwide. Apart from continuously striving to strengthen their domestic policies, the Chinese always want to boost their importance in the international arena. They are opposed to the dollar’s dominance in the global market.
The Chinese central bank’s digital currency (CBDC) is a typical example of this assertion. The U.S. has not hidden its stance on the digital Yuan as a threat to the U.S. dollar. Meanwhile, China has been continuously dishing out millions of dollars of its digital currency in the name of a lottery.
Though SWIFT processes a higher value of a currency than what the digital Yuan does, the emergence of the digital currency has compelled SWIFT to be more competitive to maintain the market’s larger share. Recently, SWIFT introduced some initiatives like instant payment for cross border transactions.
CBDC, which stands for Central Bank Digital Currency, is a central bank-backed currency meaning the liability lies in the government, as against private banks. The evolution of decentralized digital currencies has prompted central banks to join the revolution rather than allowing the opportunity to elude them.
It should be noted that there is a large number of digital currencies, popularly referred to as cryptocurrencies. However, they are not government-backed. Fully decentralized crypto is Bitcoin and its counterparts. No single device is authenticating cryptocurrencies. Instead, there are numerous devices worldwide that authenticate the accuracy.
There are different reasons a government should not neglect digital currencies. First of all, they reduce the cost of transferring money across the world. Also, they ensure that the unbanked ones have access to financial services. Transparency is another reason why governments should not ignore virtual currencies.