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Macroscope | How China’s digital yuan can chip away at the US dollar’s dominance
- China’s growing clout makes the Belt and Road Initiative and RCEP trade bloc ideal platforms to push for yuan internationalisation, aided by Hong Kong’s financial centre strengths
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Many countries – from Latin American states like Brazil to Southeast Asian nations – are calling for trade to be carried out in currencies other than the US dollar. Since the 2008 global financial crisis, the dollar’s supremacy has increasingly been questioned.
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At the World Economic Forum in Davos in January, Saudi Arabia’s Finance Minister Mohammed al-Jadaan said the kingdom was open to trading in currencies other than the dollar, for the first time in 48 years.
Last month, Brazilian President Luiz Inacio Lula da Silva, while on a state visit to China, called for reduced reliance on the dollar for global trade. And, in March, Malaysian Prime Minister Anwar Ibrahim, also on a visit to China, revived the idea of an Asian monetary fund to address dollar reliance.
But these trends must be put into perspective. The dollar remains dominant in global foreign exchange reserves, accounting for 58 per cent in the fourth quarter of last year, according to the latest data from the International Monetary Fund.
Beijing is trying to change this situation. So what role can the digital yuan – China’s central bank digital currency (CBDC) – play in de-dollarisation?
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There were high hopes for the internationalisation of the yuan in the early 2010s, but the results have been mixed and even slightly disappointing. There has been progress in the past few years but it has been relatively modest, with the yuan hovering around the fifth-most-used currency in global payments, according to the Swift financial messaging system, after climbing up from 35th in October 2010.
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