Over the past year, reports of China’s Central Bank Digital Currency (CBDC) have emerged, with many speculating that the rise of Facebook’s Libra has prompted a renewed sense of urgency for the country to issue its own digital currency and protect its monetary sovereignty.
However, with the issuance of the CBDC, China’s fiat currency the Renminbi, colloquially known as the Chinese yuan, is also expected to become stronger against the U.S. dollar, as the Chinese government has been introducing initiatives to increase the use of the RMB in international communities.
According to a report by Ledger Insights, a publication by the Asian Development Bank has stated that China has been aiming to “internationalize the RMB for longer than its leading trade status,” with pilot projects in Southeast Asia to use its currency to settle trades.
This strategy has seen some success: in 2010, only 1% of China’s international trade was settled in RMB, while 2014 saw the number increase drastically to 27.8%.
China’s loans to other countries also accounted for a boost in the use of RMB. A SWIFT report in June 2019 stating that in Africa, payments using the RMB increased by a whopping 123% over three years.
If China’s CBDC becomes internationally accessible, it may turn into tool for the Chinese currency to gain strength against the U.S. dollar.
China has been making preparations for its digital currency launch. In 2018, Alipay, one of the speculated distributors of the CBDC, made the transformation to using UnionPay — a settlement company with close connections to the central bank of China — for barcode payment clearing.
However, it remains to be seen what the actual impact on China’s fiat currency will be, once the digital currency enters circulation in the near future.
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