The central banks of the U.S., Japan and China have recently placed a spotlight on dollar dominance and addressed the prospects of a yuan takeover.
Earlier this month, top officials at the Treasury, State Department, Pentagon and National Security Council were reportedly increasing scrutiny on the digital yuan due in part to concerns that it could topple the greenback’s reserve currency status.
One week later, a senior Bank of Japan (BoJ) official downplayed the potential for a takeover by the digital yuan.
«The dollar’s status as the key global currency won’t change so easily,» according to a «Bloomberg» report citing Kazushige Kamiyama, who heads BoJ’s payment systems department and digital yen efforts. «In fact, the dollar’s advantage may strengthen further if the U.S. goes with digitalization.»
PBoC: «Our Goal is not to Replace the U.S. Dollar»
Soon after Kamiyama’s comments, the People’s Bank of China (PBoC) denied any ambitions to contend with the dollar.
«For the internationalization of the renminbi, we have said many times that it’s a natural process, and our goal is not to replace the U.S. dollar or other international currencies,» said PBoC deputy governor Li Bo on Sunday during a forum in southern China, adding that the primary focus for the e-yuan in the near-term is domestic usage.
«[International] interoperability is a very complex issue and we are not in a hurry to reach any particular solution yet.»
Digital Yuan Bulls
Not all are convinced that future markets will involve continued dollar dominance or a modest yuan.
Templeton Global Macro's chief investment officer Michael Hasenstab, for instance, wrote in a «Financial Times» report that few nations were as aggressive as China when it came to central bank digital currency (CBDC) development and that it had potential to capture first-mover advantages,
«This shift, combined with other macroeconomic and political factors, could be the key that accelerates the decline of the dollar’s dominance as the world’s leading reserve currency,» he wrote. «It could also hasten the acceptance of the renminbi as the main rival to the U.S. currency.»
Bitcoin Endorsement
In the same week that the PBoC claimed that it was not looking to actively challenge the U.S. dollar, it fuelled headwinds for another asset popularly viewed as a potential challenger: bitcoin.
PBoC’s Li told «CNBC» during the Sunday forum that bitcoin was an «investment alternative» – a sharp shift compared to 2017 when China first launched a crypto crackdown against initial coin offerings and exchanges locally. This also contrasts with views from PBoC’s director of digital currency research institute Mu Changchun who just last month called the rise of bitcoin a threat to «safeguarding monetary sovereignty».
Interestingly, American venture capitalist Peter Thiel called bitcoin a «Chinese financial weapon» earlier this month in an event for members of the Richard Nixon Foundation, highlighting risks for the U.S. dollar from the ongoing rise of cryptocurrencies.
