China and the U.S. Are Racing – Albeit Slowly – to Create a Global

For decades the U.S. dollar has been the undisputed global reserve currency, but that could soon change. Since 2014, China has been quietly working on its own Central Bank Digital Currency (CBDC), which is a suped up, e-version of its homegrown yuan. And this year, the People’s Bank of China launched a real-world beta test of its CBDC in more than 30 major cities to iron out any bugs. In June, it even held a lottery to give out digital wallets with 200 yuan (about $31) to 200,000 citizens to jumpstart adoption.

Over the past few years, several other countries have run small test launches of CBDCs too, including the e-krona in Sweden and the e-peso in Uruguay. Other countries currently exploring their own CBDC projects include France, Korea, Russia, Canada, Brazil, and South Africa. However, nothing has reached the scale of China’s CBDC rollout.

A source connected to the U.S. Treasury Department, who spoke exclusively to me on condition of anonymity, says China’s CBDC aspirations are an attempt to become the world’s future digital currency.

“We now know China’s CBDC is far less ‘progressive’ than initially anticipated,” the source explains. “Instead of a new CBDC, it’s more of a digitized yuan. We’re pretty sure China’s aim with the ECNY (digital yuan) is to attack the dollar’s status as a global reserve currency but don’t know how effective a job it’ll do in its present state.”

What China’s launch means for a U.S. digital dollar

U.S. Federal Reserve Chair Jerome Powell was not worried either during a Sept. 22 press conference when he was asked if he had any concerns about China’s head start in this global digital currency race.

“I think it’s important that we get to a place where we can make an informed decision about this and do so expeditiously,” Powell said. “I don’t think we’re behind. It’s more important to do this right than to do it fast. We are the world’s reserve currency. And I think we’re in a good place to make that analysis and make that decision,”
he said.

Powell went on to say that the Fed is working on a paper that will inform the decision on launching a U.S. CBDC, which could be ready in the next few weeks.

“We do intend to publish a discussion paper soon that will be the basis for a period of public engagement,” Powell said. He added that “The ultimate test [that] will apply when assessing a central bank digital currency and other digital innovations is, are there clear and tangible benefits that outweigh any costs and risks?”
Supporters of a fed-backed digital dollar say those benefits include cheaper and faster financial transactions and speedier distribution of federal funds such as Social Security benefits or aid such as stimulus checks. According to the FDIC’s 2019 How America Banks survey, there are about 7.1 million unbanked households in America. So the digital dollar could also be a way to boost economic…