The majority of Chinese intellectuals called out over-reliance on the United States Dollar and seemed worried about the safety of Beijing’s massive amount of US dollar reserves. These scholars suggested the diversification of China’s reserve and pressed the government to globalize the Chinese Renminbi.
Against this backdrop to potentially unleash a currency war against the United States amidst heightening tensions with the Trump administration; The central bank of China is on its way to launch the digital renminbi.
Almost overnight, China has transformed into a global economic powerhouse. The nature of money has changed, and with it has come to a cashless payment society in China. Hundreds of Millions of Chinese citizens use popular payment applications to make purchases such applications like WeChat and Alipay. It is easy to see how immensely technology and quantum macroeconomics have redefined the future of money.
Since the inception of Bitcoin in 2009, many people have objected to the concept of fiat money. Perhaps even challenging the perceived notion of the US dollar as a good store of value.
New Era in the Currency Wars
Now the People’s Bank of China (PBoC) is preparing to test the genesis of a global stable coin. In a bid to solve one of the biggest results of conspiracy in financial crises, several experts believe China’s digital currency marks the beginning of a New Era in the currency wars.It was unlikely that a digital currency could have the potential to challenge national currencies. Yet as it turns out, projects such as the Digital Renminbi and Facebook’s Libra could catalyze a new economic arms race against the US Dollar.
The fact is that programmable algorithms were initially not better storage of value, hence the rise of a volatile bitcoin. A cryptographic asset that could easily skyrocket by $10,000 or even declines to as low as $1000. Invariably, governments and central banks still had an upper hand in the financial ecosystem. However, Bitcoin and other altcoins still maintained a vast potential as mediums of exchange and international remittance.
Meanwhile, China’s Central Bank has been working on digital currency for the past six years in an effort to usurp the US dollar from its reserves. Figures have it that at least 58% of global foreign exchange reserves are held in dollars. While China could create an all parallel new financial ecosystem presently dominated by giants such as Paypal and SWIFT; it is unlikely that it would catch up with the US dollar. China positions its digital Renminbi as a stablecoin. And as it holds, stablecoins are regarded as the quintessential stepping stones towards the mass adoption of digital currencies.
Despite the Central Bank’s statue as one of the most advanced central banks in the world, PBoC shifted its acceleration forward following Facebook’s plan to unveil a global stablecoin. Beijing worried that if Facebook would unleash its currency to approximately 3.0 billion of its Facebook, whatsapp and Instagram users, China’s digital currency would be reduced to nothing. Therefore, the bank geared its effort to complete its work quickly and is currently preparing to launch its first pilot test.
Facebook CEO Mark Zuckerberg was skeptical about the United States laxity to renovate its financial system. The internet mogul referred to the currency war as global competition and guaranteed that his country’s financial leadership was at risk:
“China is moving quickly to launch a similar idea in the coming months,If America doesn’t innovate, our financial leadership is not guaranteed.“
While Libra is tied to a diverse amount of major currencies, the digital renminbi is backed by the regular yuan. Hence, it will be relatively stable. Yet unlike Bitcoin’s decentrality, the central bank will monitor all transactions that take place.