China Digital Currency – For two days in a row last week, amid coronavirus-related market meltdowns, a group of stocks on China’s main exchange moved so significantly that they triggered automatic circuit-breakers designed to halt trading. But trading was suspended not because the stocks plummeted. It was because they soared.
The explosive rally of digital currency-related stocks followed news that after several years of anticipation, China’s government released a timeline for rolling out its new digital currency in four cities.
In the next month, government workers in these cities will use a smartphone application to receive at least a portion of their paychecks in the form of a digital payment, marking a milestone on the path toward the world’s first digital currency system by a major central bank.
China Digital Currency – To some experts, the digital currency could represent a serious threat to an American asset that has reigned unchallenged for decades: the U.S. dollar.
The dollar’s supremacy
U.S. dollars reign supreme in the global economy. Nearly 90 percent of international transactions in 2019 were in U.S. dollars, and about 60 percent of all foreign exchange reserves in the world are in U.S. dollars, compared with the Chinese yuan, which makes up only 2 percent of global payments and reserves.
The dominance gives Washington enormous power — even in issues that have little to do with finance. Because a linchpin of the global financial system is in New York, where dollar-based payment systems process trillions in transactions, the U.S. government has global muscle in enforcing sanctions.
With so much of the world dependent on U.S. banking, it can mean that even companies with no U.S. operations still depend on the American financial system.
“Even a company that has basically no trade in the United States, their banks do,” Jarrett Blanc, a senior fellow at the Carnegie Endowment for International Peace, told The Atlantic last year.
Because of that unique power, organizations like Iran’s Islamic Revolutionary Guard Corps and countries like North Korea feel the bite when they are sanctioned by Washington.
Domestically, the dollar has been a vital asset to Americans, too, especially in times of crisis. As demand for U.S. dollars has increased during the current coronavirus pandemic, the U.S. has been able to borrow at relatively low interest rates, helping to finance its rescue.
See also: China Imposes Restriction On Research On Origin Of COVID-19
“This is an important advantage for the U.S. in responding quickly to a crisis that policymakers in some other major economies lack,” said Ross Darrell Feingold, a lawyer and political risk analyst who has more than 20 years’ experience advising clients on doing business in Asia.
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