How China Can Turn the Yuan Into a Global Reserve Currency

In the multidimensional geo-economic contest in which China and the U.S. are currently engaged, the future roles of their respective currencies have become a key focus of speculation. Concerns over debasement of the dollar have driven a surge in interest in cryptocurrencies. Meanwhile, the People’s Bank of China (PBOC) has been making steady advances in the roll-out of its own central bank digital currency (CBDC), dubbed the Digital Currency Electronic Payment (DC/EP).

It is conjectured that the Chinese CBDC will eventually eliminate China’s dependence on the dollar and dollar payment systems and propel the renminbi, also called the yuan, to usurp the dollar as the leading global reserve currency. However, the DC/EP alone is far from sufficient to truly internationalize the renminbi.

The Chinese CBDC could bring about a wide range of benefits, including raising financial inclusion, lowering the cost of payments across the economy, improved ability to monitor inflation and transmit monetary policy, as well as greater capacity to combat tax evasion, money laundering and other financial crime.