Digital Yuan won’t affect the Dollar’s dominance

Although the Central Bank of China has made some policies concerning the RMB, foreign investors are skeptical if that can really change the exchange rate of the fiat currency.

According to Professor Eswar Prasad, a prominent scholar at Cornell University and Brookings Institution, the digital yuan may be able to boost the value of RMB but that doesn’t mean it will be preferred to the USD for international trade.

Prasad wrote on Project Syndicate that it will be in China’s advantage if it improves the financial markets so that businesses can flourish as this can improve the value of the digital yuan making it very useful and more acceptable for payments across countries.

The professor still admitted that the renminbi hasn’t done badly in the last few years as a reserve currency and a medium for obtaining goods and services. He mentioned that currencies which may give way for the renminbi are the Euro and British Pound:

“Even when the IMF added the renminbi to the four existing currencies in the SDR basket and gave it a 10.9% weighting, it was mainly the euro, the pound, and the Japanese yen that gave way, not the dollar.”

Prasad said the value of China’s currency is determined by the central bank and that the situation doesn’t look like what is going to change in the nearest future.

Notwithstanding, Professor Prasad still thinks it is possible for the digital yuan to be adopted for international trades if countries that trade directly with China decide to use the digital yuan.

The Ministry of Commerce in China said two weeks ago that it will extend trials for the country’s CBDC to Beijing, Tianjin, and Hebei provinces.

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