The idea that China is trying to displace the US dollar as a reserve currency is now quite often discussed, and the Asia Times has published an interesting article on this subject.
DCEP — not an enemy, not a friend
The US dollar accounts for more than 60% of the world’s foreign exchange reserves.
The euro has 20%, and the yuan (DCEP) is not even registered.
Well, the article makes it clear that the Chinese gambit is not a replacement for the world’s reserve currency. They know it won’t happen, or something we don’t know.
China does not intend to replace the US dollar with its yuan within the existing global banking system. The revolution in the field of big and financial technologies will make the dollar unnecessary anyway. Instead, as Morgan Stanley analysts explained this week, “banks will lose their deposit base” as digital currencies replace their most basic functions.
According to author David P. Goldman, this is the key game the Chinese are making with the central bank’s digital currency (CBDC).
The paragraph that really resonated with analysts is as follows:
“Western analysts do not understand that China is not trying to take the place of the United States. Rather, China is creating a new system of world trade and finance that, as a by-product, will replace the methods of trade finance that have remained in force since the Republic of Venice introduced them in the 13th century”.
Why does it resonate?
China has realized that there is a new currency design, and most of Europe and America have not (yet). For digital networks, a new currency design is needed to replace the currency design of physical networks.
Why do you think China is at the forefront of issuing CBDC? This has nothing to do with technology and technical experiments. All this is related to trading and trading experiments.
Technology, trade, and finance go hand in hand into the future. So let’s forget the idea of replacing the dollar with a Chinese currency. Let’s instead consider the idea of a new trading structure.
Goldman argues that the role of reserve currencies, which began with the pound under Pax Britannica, will atrophy over time.
So, what does that mean? This means that the new currency will support operations in the digital world. Is it Chinese CBDC, Bitcoin, ETH or something else?
Perhaps the answer lies in a research paper by Morgan Stanley: “Digital Breakthrough: The Inevitable Rise of CBDC”, where they note that:
“While central banks will try not to interfere with banks’ operations, CBDC accounts will increase competition for customer deposits.
Direct access to central banks will allow non-banks with technical capabilities to offer payment services and digital wallets, collecting data on customer transactions in the process.
Combined with advances in artificial intelligence, big tech will be able to use transaction data to assess creditworthiness and cross-sell.
In the most destructive case, banks lose their deposit base, and the creation of credit must be financed in bulk or at the expense of the central bank”.
In fact, they emphasize that the digital system will empty the deposit base of the banking system, especially for financing international trade, and that reserve currencies will not disappear, but will become rudiments.
A magnificent word that translates to “a very small remnant of something that was once great”.
Like the British Empire, the US dollar can follow the path of the last great empire of trade and commerce. It sparked the industrial revolution, but it’s fading at the root of the digital revolution, and it has nothing to do with China versus America. This has much more to do with what supports the trade and commercial structure of the new network. There is a challenge and a question: the future belongs to the Chinese CBDC, BTC, ETH or something else?