There may have been talks that China’s proposed central bank digital currency (CBDC) may not be able to challenge the US dollar’s firm grip on the global economy as the most used currency for transactions, a Chinese attorney who has worked in the capital markets of both the US and China.

Winston Ma, Chairman of the Advisory Board for ThreeFold, a European decentralized cloud company, in an interview with the China of Tomorrow podcast highlights three main factors that could see the digital yuan eventually displace the US dollar and the euro as a primary currency of exchange in the world.

“I think the quick answer to that is: not immediately. But I think, give it a few years when other digital ecosystems develop, especially with more blockchain-based ecosystems developed around the e-RMB, I think it will become a serious challenge to the US dollar,” he said. “Here is why. Right now, China is ahead of the world in terms of digital currency testing. It may become the first major global economy to start a sovereign digital currency across the country. By contrast, the US and Western Europe are still behind. China will have this leading advantage.” 

While China has intensified its moves to maintain a lead by conducting several test pilots for its DC/EP project across major cities, the US Federal Reserve confirmed on Thursday it will launch a research paper this summer on its proposed CBDC to seek public input, according to its Chair, Jerome Powell. 

Ma adds that since the global trading system has been in US dollars for such a long time, turning RMB from paper into digital is not going to change people’s preference immediately though some organic developments around the e-RMB could help promote the usage of the RMB especially from the digital aspect.

China’s rapid development of blockchain-based supply chain applications in the financial systems is another factor cited by Ma, the author of The Digital War: How China’s Tech Power Shapes the Future of AI, Blockchain and Cyberspace. As the world’s factory for supply chain financing with lots of contexts, he believes using such applications as well as blockchain infrastructure which are more secure, transparent, and more pricing efficient will see spread into cross border transactions. 

The third factor is the blockchain-IT ecosystem that China is developing as a cross-chain and cross-cloud system that will go into foreign markets citing Blockchain Service Network as an example for its cheap services for global developers to run dApps. With lots of nodes in China and now increasingly gathering nodes in foreign countries, Ma says more global dApps are likely to use China’s blockchain-based IT infrastructure. 

“So when you put these three things together – the digital currency, and the real world applications whether in trades or in supply chain financing as well as the fundamental blockchain IT infrastructure – then you can sort of imagine going forward that it will become a very robust ecosystem where players across the world can develop applications using Chinese blockchain-based infrastructure working with Chinese players and transact with e-RMB. With that, it would challenge the US dollar,” he said adding that he agrees that China’s capital control may limit the internationalization of the e-RMB. 

Relatedly, a new working paper published by the BIS on Thursday May 20 titled “The digitalization of money” says that the ongoing digital currency revolution may lead to “an unbundling of the separate roles of money, creating fiercer competition among specialized currencies.”