Digital Yuan Won’t Threaten Dollar’s Dominance, Says BOJ Official

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In Brief
  • A senior official from the Bank of Japan (BOJ) said China’s digital yuan doesn’t threaten the dollar as the world reserve currency.

  • Although the digital yuan has been progressing fast, the official has doubts about its effectiveness.

  • The BOJ is working with several other central banks to determine the best way to issue a central bank digital currency (CBDC).

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A senior official from the Bank of Japan (BOJ) said China’s digital yuan does not threaten the dollar as the world reserve currency.

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The head of the BOJ payment systems department is confident that “the dollar’s status as the key global currency won’t change so easily.” However, Kazushige Kamiyama also noted that the dollar’s advantage could strengthen if the US decides to digitize. The BOJ official is responsible for the research and development of his own country’s digital currency.

Doubts about the digital yuan 

According to a report earlier the week, the Biden administration increasingly scrutinizes Chinese developments on their digital yuan. There is concern that these efforts could lead to displacing the dollar as the world’s reserve currency. American officials are less concerned about the immediate effect. However, they want to understand how the Chinese governance will distribute the digital yuan and whether it could circumvent US sanctions.

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The People’s Bank of China (PBOC) has been working on a digital currency since 2014. Last month, China’s Digital Currency Electronic Payment (DCEP) proceeded with the digital yuan testing phase’s biggest trial. It expanded further to the capital of the Sichuan province, Chengdu. 

However, Kamiyama highlighted further skepticism he has regarding the digital yuan. “I believe technology is constantly evolving, and the technology that they’re using currently might become outdated,” he said. “It might even hinder further technological innovation,” Kamiyama added.

Additionally, he noted that for a currency to become popular, it has to be safe, have a stable value, and move without restrictions. He implied that the yuan doesn’t meet those standards.

Japanese CBDC Development

Last week, the BOJ initiated the first phase of experiments for its own central bank digital currency (CBDC). Kamiyama said that the BOJ is participating in group studies with the Bank for International Settlements and six central banks. Among these are the US Federal Reserve (Fed) and the European Central Bank.

Kamiyama also said the BOJ had no specific plans to issue a CBDC. However, he refuted that the central bank was lagging behind its peers. “The BOJ isn’t behind” in the study of a digital currency, Kamiyama stated.

He said the BOJ had several considerations to make before it could declare any firm plans. Kamiyama noted that Japan and other developed countries already have safe and efficient payment systems, so any CBDC needs to do more than that. The BOJ would also need support and input from the public before any CBDC issuance.

Both of these points were also raised by Fed Chairman Jerome Powell. Regarding the dollar’s role as the world’s reserve currency, he cited this as a reason for the Fed to take its time in considering a CBDC. “The dollar is so important,” he said. “We don’t need to be the first to do this. We need to get it right.”

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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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