The Biden administration is reportedly monitoring the development of the digital yuan. There are fears that a Chinese central bank digital currency (CBDC) will be used to skirt sanctions and could affect the dollar’s dominance.
Sources close to the matter told Bloomberg that the administration is “stepping up scrutiny of China’s plans for a digital yuan.”
The concern is that the digital currency could affect the dollar’s position as the world’s reserve currency.
The report offers several bits of information regarding the US authorities’ position on the digital yuan. They are concerned about its distribution method and being a tool to sidestep sanctions. It also stated that the Treasury, State Department, Pentagon, and National Security Council are “bolstering efforts” to understand it.
China is currently leading the CBDC race, having already completed several successful pilot projects and airdrops. Transactions in the currency have already crossed millions in dollar value and it’s proving to be effective in China’s digitization plan. The country already has a highly sophisticated digital payment system, as is the case with many Asian countries.
Several other countries are also working on CBDC efforts, most notably Japan, France, and Australia. Russia recently announced its plans to trial a digital ruble in 2022. However, even for China, the research and development phase is far from over.
There has been a significant change in tack from governments on CBDCs in the past year. International organizations like the Bank for International Settlements have also joined the throng.
Still, the US is more concerned about the digital yuan China gaining more control in a dollar-dominated world.
Can the US keep up with China?
There have been some minor steps towards a U.S. dollar-based digital currency, with U.S. Federal Reserve Governor Lael Brainard commenting on it in a hearing last year.
On the US’ part, the focus has been on getting the fundamentals right. Treasury Secretary Janet Yellen has said that “it makes sense for central banks to be looking at.” However, the anxiety surrounding the yuan’s role is not yet so high that officials are demanding immediate action.
Still, analysts believe that the US should speed up its digital dollar plans. Former CFTC Chairman Christopher Giancarlo is attempting to do just that. Giancarlo is currently leading the Digital Dollar project.