The collapse of FTX is inspiring all sorts of innovations across the United States. The main one is the establishment of the federal digital dollar. In hopes of reigning in other situations like the one with FTX and Sam Bankman-Fried from ever occurring again. But the United States isn’t the first, second, or third country in the world to create a digital dollar.
In fact, the Chinese government is already in process of perfecting the digital dollar. It’s all thanks to the technology that crypto and blockchain technology have created. But will the Chinese Yuan ultimately dethrone the American digital dollar before it even has a chance to make its premiere on the global stage?
What Do We Know About the Yuan?
Let’s talk about what we know so far about the digital Yuan. China’s digital yuan project, the blockchain-based cryptocurrency for consumer and commercial finance, can no longer be considered a pilot. That’s the assessment by economic and cryptocurrency experts.
Those experts have been monitoring efforts in China and other countries developing and piloting central bank digital currencies (CBDCs). The goal is to establish blockchain-based virtual cash that is cheaper to use and faster to exchange, both at home and across international borders.
To date, the People’s Bank of China has distributed the digital yuan, called e-CNY, to 15 of China’s 23 provinces, and it has been used in more than 360 million transactions totaling north of 100 billion yuan, or $13.9 billion. The country has literally given away millions of dollars worth of digital yuan through lotteries, and its central bank has also participated in cross-border exchanges with several nations.
Is This the End of the US Dollar?
If e-CNY continues to be adopted and becomes the de facto standard for international commercial and retail payments, the privacy of those using digital currency, as well as the US dollar’s days as the world’s reserve currency, could be at risk.
Whatever nation figures out an internationally accepted financial transaction network for digital cash will be the one to set the standards around it. “Then everyone else will have to follow them,” said Lou Steinberg, former Ameritrade CTO. “Those standards will be designed with what the developer of them wants to accomplish. Surveillance could be built in.
The US is Considering a Digital Dollar of its Own
The US has been considering the creation of a digital representation of the dollar for nearly three years. In March, President Joseph R. Biden Jr. issued an executive order that among other things, called for more urgency on research and development of a US CBDC “should issuance be deemed in the national interest.”
“I don’t think we’re treating this like a Moonshot,” Steinberg said. “The Fed’s not saying this is the future, like it or not, and we need to have a say in how it unfolds, and therefore it becomes the most important thing we do.”
In November, the New York Federal Reserve Bank began developing a wholesale CDBC prototype. Named Project Cedar, the CBDC program hammered out a blockchain-based framework.
It’s expected to become a pilot in a multi-national payments or settlement system. The project is now entering phase 2. It’s a joint experiment with the Monetary Authority of Singapore to explore questions about the interoperability of the distributed ledger.
Could this new project lead the way for the dominance of the digital dollar? Or will this ultimately fail in the face of the Digital Yuan? Only time can tell. However, you can expect not only the government to be keeping an eye on but investors as well.