China
China's digital currency will be a reserve currency
I give my views about China's digital currency and how it will impact the global financial system.
Many people may not realize that China's digital currency, which I will refer to as the e-CNY, is a different currency from the current yuan (CNY).
Initially, the e-CNY will have the same value as the CNY. Later, the value of e-CNY may be different from the CNY. It will depend on supply and demand for e-CNY.
The e-CNY will be an international currency and will be available for foreigners to hold.
Initially, the foreigners will covert their currency into e-CNY and will use it for the 2022 Beijing Winter Olympics (2022 Olympics). They will use the digital platform that is developed by China for transaction of e-CNY.
After the Olympics, the foreigners have the choice to convert the balance of the e-CNY back to their own currency or to hold the e-CNY for purchase of products from China on the online platforms.
I expect many foreigners to keep the e-CNY and to buy products from the online platforms, such as those operated by Alibaba, JD, Shein, etc.
That will be the first step towards using the e-CNY, instead of USD for these transactions.
By that time, the digital platform would have been tested and proven and the foreigners would be comfortable about keeping the e-CNY.
This is the first step to the use of e-CNY as a reserve currency. It will be an alternative to the USD as a reserve currency.
I do not expect th e-CNY to replace the USD as the reserve currency. Instead, it will be another reserve currency.
The foreigners have a choice of keeping their money in e-CNY or USD. Due to the large debt in USD, many of foreigners may prefer to diversify their savings into two reserve currencies, instead of keeping all their savings in USD, i.e. do not put all your eggs in one basket.
Some foreigners may not trust China or the e-CNY. So the USD may still be their preferred choice as a reserve currency.
I will now explain why the e-CNY is a separate currency from the CNY.
China will still want to maintain the capital control of the CNY. They do not want their citizens to convert the CNY freely into foreign currencies. It would make the authority lose control over the CNY.
However, the China authority has put into place the necessary control of e-CNY as a currency for international trade as as a reserve currency.
The China authority will want to keep the e-CNY at the same value of CNY, but it is not mandatory. If the situation demands it, the e-CNY can have a different value from the CNY.
So, we can expect the e-CNY to be used actively for international trade and as a reserve currency in the future. I expect that it will be used more actively after the 2022 Olympics.
I will be monitoring the use of e-CNY in 2022 and afterwards. I believe that it will be accepted quite widely and very fast.
This is my personal opinion. I am not an international currency expert. But I use my common sense.
Give me your views. Do you agree that the e-CNY will be used more actively and will be a second reserve currency after the 2022 Olympics?
Tan Kin Lian
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I agree with your thoughts. The e-CNY, as you outlined is likely part of the new Global Central Bank Digital Currency regime proposed by the BIS and other central banks as a replacement for the USD.
My guess is that China will try to set a more equitable agenda and not impose a debt based system on humanity as with the previous USD petrodollar system.
Do you think there will be a more equitable global monetary regime or more of the same?
WK 28 Dec 2021
In case of online platform, e-CNY can avoid the Swift system, and escape paying commission to Visa /master. this could be a win-win for the user.
TS 25 Dec 2021
I expect the price quoted in online platforms in e-CNY will be slightly cheaper than the USD. This will encourage foreigners to pay in e-CNY
Tan KL 12 Dec 2021