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China’s Digital Yuan Rollout Could Pose Challenges to Dollar

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EDITOR NOTE: We’ve heard the digital yuan described in various ways, all colorful and alarming: The digital yuan rollout will be a cancer. It’s a Trojan horse. It’s a means by which China can export its authoritarianism. It’s the largest threat to the West in the last 30 to 40 years. And how America responds is the single most important move on the global chessboard in the last 20 years. Most of the comments above were extracted and paraphrased from various interview comments made by Hayman Capital’s Kyle Bass. No doubt, the digital yuan has the potential to become a major global monetary disruptor. Will it threaten the US dollar’s world reserve currency status? Or is it a way for China to build up its dollar reserves? Is the best counter move to speed up America’s monetary innovation by developing a digital dollar? Or, might it be more efficient for the US to find ways to “disallow” it?

China is beating the U.S. when it comes to innovation in online money, posing challenges to the U.S. dollar’s status as the de facto monetary reserve. Nearly 80 countries — including China and the U.S. — are in the process of developing a CBDC, or Central Bank Digital Currency. It’s a form of money that’s regulated but exists entirely online. China has already launched its digital yuan to more than a million Chinese citizens, while the U.S. is still largely focused on research.

The two groups tasked with this research in the U.S., MIT’s Digital Currency Initiative and the Federal Reserve Bank of Boston, are parsing out what a digital currency might look like for Americans. Privacy is a major concern, so researchers and analysts are observing China’s digital yuan rollout.

“I think that if there is a digital dollar, privacy is going to be a very, very important part of that,” said Neha Narula, director of the Digital Currency Initiative at the MIT Media Lab. “The United States is pretty different than China.”

Another concern is access. According to the Pew Research Center, 7% of Americans say they don’t use the internet. For Black Americans, that rises to 9%, and for Americans over the age of 65, that rises to 25%. Americans with a disability are about three times as likely as those without a disability to say they never go online. That is part of what MIT is researching.

“Most of the work that we’re doing assumes that CBDC will coexist with physical cash and that users will still be able to use physical cash if they want to,” Narula said.

The idea of a CBDC in the U.S. is aimed, in part, at making sure the dollar stays the monetary leader in the world economy.

“The United States should not rest on its current leadership in this area. It should push ahead and develop a clear strategy for how to remain very strong and take advantage of the strength of the dollar,” said Darrell Duffie, professor of finance at Stanford University’s Graduate School of Business.

Others see the digital yuan as insidious.

“The digital yuan is the largest threat to the West that we’ve faced in the last 30, 40 years. It allows China to get their claws into everyone in the West and allows them to export their digital authoritarianism,” said Kyle Bass of Hayman Capital Management.

Watch CNBC’s deep dive video into CDBCs to learn more.

Original post from CNBC

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