Digital Yuan As Potential Challenge to Global Economic Order

Japan is calling for a ramp up of efforts toward issuing a digital currency to somewhat be in readiness for China’s digital yuan rollout which a global capital market insider says could be “the largest risk to the US national security and the West.” 

The Japanese government has reportedly increased staff looking into legal and technical aspects of issuing the CBDC though pilot programmes are not expected until 2023 at the earliest.

“Japan must speed things up so it’s ready to issue a digital yen any time,” Takayuki Kobayashi, a minister overseeing economic security said, according to a Reuters report. “We must think about what could happen to Japan’s national security if other countries move ahead on CBDC.”

The US has not done much with regards to China’s digital yuan, according to founder and CIO of Hayman Capital Management, Kyle Bass. He thinks the US should be weary of the digital yuan rollout as it will aim for a US with less power and “enable the Chinese government to basically export digital authoritarianism all over the world.”

“China is desperate to roll out this digital currency in 2022 and if they are successful in pushing this out, that will enable their militaristic belligerence and their aggression all over the world because, today, the US holds all the cards,” Bass said in a Fox Business interview. “All the transactions that China engages with all over the world are in US dollars. We can actually sanction their banks and turn off their access to dollars. They are desperately trying to get out from under our sanction regime so that they can operate in a world where the US has less power.”

Cryptocurrencies may be destabilising and CBDCs give central banks a tool to address their threat, points out GlobalData Themes head of thematic research, Cyrus Mewawalla. However, the position of the digital yuan with regards to the US dollar has been an ongoing debate with views split on whether its rollout will challenge the US dollar dominance or not.

Bass believes the digital yuan’s release will allow the Chinese government to have direct access to individuals and corporations all over the world outside of the view of law enforcement and any kind of banking and regulatory structure which can enable bribing and direct coercion. He adds that this could particularly be the case considering that less than 2% of global transactions – mostly in Hong Kong – settle in the yuan today.

In a recent analysis, the Director at Tiedemann Advisors and Director for Digital Asset Education, Michael Greenwald, opines that the global economy is seemingly moving away from the US dollar-based system. Regardless of the digital yuan, he states that the innovation of digital assets is proving a consumer demand and utility for transacting in many different types of currencies.

Greenwald, the first US Treasury attaché to Qatar and Kuwait, believes that the digital yuan rollout at the Beijing Winter Olympics will see China impose the CBDC use on foreign nationals. He adds that the experiment will provide a beta-test environment to determine how foreigners will interact with the Chinese economy and  provide the backdrop for the long-term goal of deploying the CBDC at an international scale.

There are already talks of the Huawei Mate 40 smartphone – with a pre-installed digital yuan wallet – that was introduced into the African market earlier this year as China’s way of making Africa its likely secondary focus as it seeks to disrupt the global financial system.