Is China’s digital yuan going to overtake the dollar

The US dollar is the most reliable currency globally, even though other nations have their official currencies. The US dollar is used for all financial operations, imports, exports, and international travel. For this reason, it is known as international money. Furthermore, there is no denying that the United States has some sort of global influence in this area. 

These days, things are different. China is currently making strategic efforts to become a major player in the world economy. The nation’s economy currently ranks as the second largest in the world, with a GDP of over $17.7 trillion. Even though the US dollar still accounts for 87% of international trade, experts believe that China’s new digital currency, the “digital yuan,” has the potential to have a bigger effect on the world economy.

Digital Yuan: What and Why?

Digital currency issued by the People’s Bank of China is entitled to the digital yuan or e-yuan. With peer-to-peer transfers, electronic transactions, and digital cash withdrawals, it is a digital representation of the current currency. It has more than 260 million users and is presently operational in 26 cities and 17 provinces in China.

By paying government workers’ salaries in digital yuan and promoting it to the public through festive marketing, China has already taken several actions to make the currency widely used throughout the country. Transactions in digital yuan totaled 100 billion yuan in the first eight months of 2022 and 1.8 trillion in the first half of 2023.

The dollar’s dominance on a worldwide scale

The US dollar has dominated the global reserve currency for many years. It is especially strong in the global debt markets, foreign exchange reserves, and international trade. In 2022, around 88% of international foreign exchange transactions were made in US dollars. The United States benefits economically from this dominance, including the capacity to stop money laundering and inflict penalties on other nations.

But China’s digital yuan is aiming to undermine the dollar’s dominance. The digital yuan might replace the dollar if it proves to be a viable alternative. In the face of global sanctions, major nations like Russia and others have resorted to the yuan in recent years to lessen their reliance on the dollar. Apart from that, M-Bridge, a cross-border payment technology introduced by China, may even serve as a substitute for the SWIFT system.

Analysts say it’s uncertain that the e-yuan will replace the dollar, though. because, thus far, the dollar has been in a strong economic position. The introduction of China’s digital currency, however, is a significant step in the direction of a complex financial system. China can take advantage of the fact that, despite ongoing talks, the United States is still lagging in implementing a digital currency. The biggest risk for the dollar in this scenario will be if it loses faith in its strength and ability.

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