The Chinese central bank – People’s Bank of China (PBoC) – has expedited its efforts on launching its central bank digital currency (CBDC) Digital Yuan. However, the U.S. isn’t quite worried at this point regarding the development of China’s CBDC, said Federal Reserve Chairman Jerome Powell.
On Wednesday, April 29, the Fed chairman Jerome Powell said that the U.S. won’t be emulating China’s model of CBDC and shall be pursuing the research at its own pace. Powell said that the U.S. won’t unnecessarily speed up the process of digitalization of the USD but would rather focus on avoiding any missteps in this process.
The Fed chairman also took at the heavy controlling of the Digital Yuan by China’s PBoC. Powell said:
“It is far more important to get it right than it is to do it fast. It’s one that really allows the government to see every payment for which it is used in real time.”
The U.S. central bank has been taking its own time in understanding the challenges of accommodating the Digital Dollar in the country’s financial system. On the other hand, some market analysts believe that the U.S. is already ahead in Dollar digitization against the Digital Yuan. This is because a majority of crypto trade today happens in USD-pegged stablecoins.
Is Digital Yuan A Threat to USD?
While Washington looks confident and unworried about the Digital Yuan developments, some critics say that the situation is otherwise. The critics note that the digital currency from an economic giant like China can potentially challenge USD’s supremacy in global trade. Speaking to the Asia Financial Times, Steen Jakobsen, chief economist at Saxo Bank said:
“There is the challenge to the US dollar as the sole real global reserve currency as China looks to replace the US dollar in its trade relationships with the outside world through the digital yuan.
A successful rollout could be the most momentous change to the global monetary system since the Bretton Woods system was created.”
As per the Goldman Sachs analysts, a Digital Yuan can account for 15% of the total consumption payment in 10 years. Currently, the USD accounts for a massive 60% of the world’s foreign exchange reserves as per IMF. China’s Yuan contributes only 2.25%.