Eswar Prasad, Professor of Trade Policy at Cornell University and Senior Fellow at the Brookings Institution, believes that while the Chinese digital yuan will strengthen the renminbi’s role as an international currency of payment, the US dollar’s “barely affect” position will become dominant Currency.
In an opinion piece published on Project Syndicate, Prasad stated that the Chinese government should continue to reform the country’s financial markets and lift restrictions on capital flows in order to put both the Chinese CBDC and the national cross-border payment system in the global arena to strengthen its markets Adoption.
According to the professor, the renminbi has made significant gains in recent years as both a means of payment and a reserve currency. He says this is mainly due to currencies like the euro and sterling:
“Even when the International Monetary Fund added the renminbi to the four currencies in the SDR basket and weighted them 10.9 percent, it was mostly the euro, the pound and the Japanese yen, not the dollar.”
Prasad said the PBOC “is still administering the RMB exchange rate,” adding that these policies are unlikely to “change significantly anytime soon.”
However, the professor stated that since other developing countries have close trade and financial ties with China, they may “start settling and process their transactions directly” in local currency and the digital yuan when it is officially launched.
The Chinese Ministry of Commerce announced on August 14th that it would extend the country’s digital currency attempts to Beijing, Tianjin and Hebei provinces.