Beijing’s Influence Set to Grow With Digital Yuan Rollout
Amidst talks touting the yuan’s growing strength, Ulisse Dell’Orto of blockchain data platform, Chainalysis, has said that China’s development of the digital yuan (e-CNY) is set to expand Beijing’s global influence.
Dell’Orto told CNBC that China is actually turning legal tender itself into a computer code with the rapid development of the e-CNY as the Asian giant’s pioneering of central bank digital currencies has left “some of the largest powers in the world several years behind.”
“We’re talking about pilots in Europe, we’re talking about initiatives in Southeast Asia but we haven’t seen a national rollout at least in some provinces like we’ve seen in China,” the Chainalysis MD for APAC said in the interview. “This is something that will definitely benefit China. If we’re only simply looking at the Belt and Road Initiative, this could definitely be a digital currency that could be used and traded with their partners. So I think this would have a very great impact on China’s policy and this is why China is trying to roll out this currency as soon as possible.”
Chainalysis recently released a report citing China’s crucial role in the overall cryptocurrency ecosystem as well as playing a large role in cryptocurrency-related crimes. Dell’Orto however clarifies that less than 1% of blockchain transactions is connected to illicit activities.
The e-CNY is a digital extension of the yuan whose internationalisation agenda is believed to rest in large part on the relative advantages of the CBDC, according to a recent post by the Bretton Woods Committee. They also believe that the CBDC could play an important role for emerging markets – including China – which represent nearly half of the world economy but their currencies play almost no role in international transactions.
China recorded some progress with its currency lately. They include reports of the country’s foreign currency reserves rising to its highest level in over five years at the end of July. The rise to $3.236 trillion in July, up $21.9 billion from June to mark its highest level since December 2015 going by data from the State Administration of Foreign Exchange, was supposedly driven by stronger non-U.S. dollar currencies.
Swift puts the value of yuan payments at $69 trillion in 2020, maintaining a rapid growth for four consecutive years to become the fifth most active currency for domestic and international payments by value by June 2021.
Meanwhile, Kenneth Rogoff, professor of economics at Harvard University, views that Asia may unite around the Chinese yuan over time instead of the dollar should China go for a more normal inflation-targeting regime at some point.
If China no longer peg the yuan to the dollar, Rogoff notes in an interview that it would create a world where the yuan would be a regional currency in Asia, the euro for Europe, and the dollar for the rest, a situation he suggests “would be a loss of an enormous part of the global economy.”
Rogoff had in 2019 shared that China has the ambition to challenge the US dollar dominance with the e-CNY. He suggested at the time that the e-CNY could be used outside of China, hence worthy of the interest of countries like the US whose regulatory ambit may not cover the CBDC’s transactions.