US Government Concerned China’s Digital Yuan Could Threaten Dollar as the World’s Dominant Reserve Currency

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The US government is reportedly concerned that China’s digital yuan could threaten the status of the US dollar as the world’s leading reserve currency. Officials from the Treasury Department, the State Department, the Pentagon and the National Security Council are stepping up efforts to understand the implications of China’s central bank’s digital currency.

The digital yuan may pose a threat to the US dollar

The US government is reportedly tightening its grip on the Chinese digital yuan. Some government officials worry that China’s central bank’s digital currency could launch a sustained effort to supplant the dollar as the world’s dominant reserve currency, Bloomberg reported Sunday, citing people familiar with the matter.

Officials from the Treasury Department, State Department, Pentagon and National Security Council are stepping up efforts to understand the potential impact of a Chinese digital currency. In particular, they want to understand how the digital yuan will spread and whether it can be used to circumvent US sanctions.

China is actively testing its digital currency with the support of its central bank, the People’s Bank of China (PBOC). The rapid progress has reinvigorated US efforts to create a digital dollar, the publication reports, adding that the Biden administration currently has no plans to take countermeasures against the long-term threats posed by the digital yuan.

Meanwhile, the Fed is actively working on the digital dollar. Federal Reserve Chairman Jerome Powell said in February that the digital dollar was a very high priority project for the Fed. We look very closely at whether a digital dollar should be spent….. We are the world’s reserve currency, and we have a responsibility to get it right. We don’t have to be the first. We need to fix this problem, Powell said.

Several Federal Reserve Banks are working on a digital dollar. The Federal Reserve Bank of Boston and the Massachusetts Institute of Technology (MIT) recently announced plans to launch at least two prototypes of digital dollars in the third quarter.

Treasury Secretary Janet Yellen also stressed the importance of research into the viability of the digital dollar. It makes sense for central banks to consider issuing digital dollars, she said at a conference in February, noting that digital dollars could help improve financial inclusion for low-income households.

Digital currencies are likely to become more prevalent over the next two decades as the number of central bank digital currencies increases. This is according to a report on global economic trends released in March by the US director of national intelligence. He added that the extent to which private digital currencies will replace national or regional denominations, including the US dollar and the euro, for the settlement of transactions will depend on the regulatory rules adopted.

Do you think the digital yuan is a threat to the US dollar as the world’s dominant reserve currency? Let us know your comments in the section below.

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