President Joe Biden’s administration is concerned about the long-term effects of the digital yuan (China’s Central Bank Digital Currency) may have on the dollar’s status as the world’s reserve currency. As per the Bloomberg report quoting anonymous sources, officials at various government departments are making efforts to understand China’s initiative’s potential threats better. The report provides various pieces of information about the U.S. authorities’ stance on the digital yuan.
The U.S. officials are worried about its distribution system and are a tool to sidestep sanctions. It also declared that the Pentagon, Treasury, State Department, and National Security Council are reinforcing efforts to concede. Recently, China is driving the CBDC race, having already concluded numerous successful pilot projects and airdrops. Transactions using digital yuan have already surpassed millions in dollar value, and it is proving to be successful in China’s digitization plans.
The U.S. is concerned about the Threats Digital Yuan Poses Against U.S. Dollar
There are many other nations operating on CBDC efforts, like France, Japan, and Australia. Recently, Russia declared its intention to trial a digital ruble in 2022. Nevertheless, even for China, the research and development stage is far from done. There has been a notable shift in turn from governments on CBDCs in the past year. International organizations such as the BIS (Bank for International Settlements) have also entered the crowd. However, the U.S. is more bothered regarding the digital yuan of China getting more control in a dollar-dominated market.
Talking about U.S. CBDC, there have been some miniature steps towards developing the U.S. digital dollar project, with Lael Brainard, the U.S. Federal Reserve Governor, reflecting on it in a hearing last year. On the U.S.’ part, the concentration has been on making the fundamentals correct. Nevertheless, the tension surrounding the yuan’s role is not yet so great that officials require urgent action. However, analysts think that the U.S. should accelerate its digital dollar project.
Christopher Giancarlo, the former CFTC chairman, is leading the Digital Dollar project. A current report from the U.S. Director of National Intelligence opined that the scope of the threat of any foreign digital currency to the dollar’s centrality in the global financial system relies on the establishment of the regulatory rules. Moreover, China’s financial system is too fragile and weak to profess a real threat to the dollar’s status as the world’s reserve currency.