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U.S. Still ‘Winning’ Digital Currency Race Over China

Regardless of China’s presumed first-mover advantage in the area of central bank digital currencies (CBDCs), the U.S. is still winning the digital currency race, says the top executive of the second-largest stablecoin issuer. 

Circle CEO Jeremy Allaire, told the U.S. Congress on Wednesday that the U.S. and the U.S. dollar “are winning the digital currency space race today” and should continue to have the edge as he argues that regulatory clarity from Washington would bring broader stablecoin adoption. “Dollar stablecoins are doing trillions of dollars of transactions,” Allaire, whose Circle issues USDC, said. “The experimental beta of the Chinese yuan, which is government controlled in China, has done $10 billion of transactions. So the United States is winning.”

“This has the potential to grow at a very significant speed around the world and benefit the U.S. dollar and benefit American businesses,” Allaire told lawmakers. “And so I think that’s one really, really critical thing to understand. And I think the primacy and development of this infrastructure is a national security and economic priority for the United States, and we need to get going on it right now.”

A study by Bruce Mizrach of Rutgers University, stablecoins were used in $1.77 trillion of transactions in the second quarter of 2021. The turnover is less than 10% of the $18.4 trillion of payment volumes recorded through Automated Clearing, the system for U.S. electronic fund transfers, in the same quarter. But it shows that stablecoin transactions grew more than 1,100% year over year, the study states. It adds that more than a third of stablecoins, seven of the ten largest which are backed by fiat assets, have failed hence concludes that failure rates of stablecoin projects are almost as high as for other digital assets.

As China’s digital yuan is set to be rolled out fully by February 2022 during the Beijing Winter Olympics, several concerns continue to be raised about whtaat is likely to the first CBDC by a major economy. There have been data privacy concerns and now, Allaire, in his testimony, suggests that China will need clearer rules for mass use to be able to sustain the digital yuan’s recorded number of transactions.

For the director of UK signals intelligence agency GCHQ, Sir Jeremy Fleming, digital currencies like the digital yuan present a “great opportunity” to democratise payment systems as well as pose a threat. “If wrongly implemented, it gives a hostile state the ability to surveil transactions,” he said in a recent interview with the Financial Times in which he warned that the digital yuan could be used as a tool to surveil users and exert control over global currency transactions. “It gives them the ability . . . to be able to exercise control over what is conducted on those digital currencies.”

Meanwhile, the year has been good for the yuan and its value especially when put side by side with the U.S. dollar. According to the Wall Street Journal, the yuan has soared to multiyear highs against the U.S. dollar and other major currencies. The surge, while reflecting strong demand for China’s exports and its financial assets, is unusual though as it comes with the U.S. dollar also gaining. The Journal notes that the traded offshore yuan has so far gained about 2% against its U.S. equivalent this year .

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