A signboard welcoming the use of the digital yuan (e-CNY) is displayed at a shopping center in Shanghai on March 8, 2021.
The Communist Party of China’s central bank has decided to issue a digital version of the yuan in order to embrace digitization. Experts worry that in the long run this could have an impact on the U.S. dollar.
The Communist Party’s central bank has already launched a trial issue of the digital yuan in various Chinese cities and could become the first major central bank to issue a virtual currency. A broader rollout of the digital currency by the CCP is expected to take place by next February during the Winter Olympics in Beijing.
In recent months, more than 100,000 Chinese have downloaded an app from the central bank as part of a test rollout, in which those taking part trade with small amounts of money handed out by the government.
According to reports, the digital yuan will be controlled and issued by the Communist Party’s central bank, providing the Communist government with a new tool to closely monitor the economy and its people in real time. Mu Changchun, director of the CCP’s Central Bank’s Digital Currency Research Institute, said the currencies will be traceable.
The CCP’s digital currency has also piqued the interest of U.S. officials, with U.S. Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell saying they are studying the issue and exploring the possibility of creating a digital dollar in the future.
According to The Wall Street Journal, while the digital yuan cannot rival the U.S. dollar by itself, the new form of digital currency could make a big dent in U.S. sanctions against the Chinese Communist Party if it is used as an option for international transfers in poor countries.
As the issuer of U.S. dollars to 21,000 banks worldwide, the U.S. demands to know about cross-border transactions. The digital renminbi gives people a potential way to exchange currency without the U.S. knowing about it, and the exchange can happen while bypassing the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a bank transfer information network monitored by the U.S. government.
In response to a 2019 Harvard University discussion on digital renminbi funding for North Korean nuclear missiles, former U.S. diplomat Nicholas Burns said, “The Chinese have created a problem for us by taking away our sanctions leverage. “
John Lipsky, a former staff member of the International Monetary Fund and now with the Atlantic Council, a Washington think tank, said that anything that threatens the dollar is a national security issue. Anything that threatens the dollar is a national security issue, and in the long run, the digital yuan will threaten the dollar.
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