Digital yuan might overtake the Euro but unlikely to replace USD as the world’s reserve currency immediately
Dutch fintech-focused non-profit think tank dGen has published a report claiming that at least three to five countries worldwide will replace their fiat currency entirely by central bank digital currencies (CBDC) in the next 10 years.
The report, dedicated to geopolitical trends of CBDCs, attempts to explain and predict the status of major global fiat currencies such as the US dollar, the euro and China’s yuan.
The 30-page report titled Report on Geopolitical Ramifications of CBDCs, has been compiled with support from key organisations and institutions like the European Central Bank (ECB), Standard Chartered Bank, and the Frankfurt School to understand the impact of CBDCs on the global financial system.
Central Bank Digital Currencies or CBDCs are the digital representation of fiat money issued by a country’s central bank to provide cashless transactions, speed up payments and reduce associated costs.
The report does not make predictions on exactly which countries are likely to entirely shift to CBDCs by 2030. However, dGen outlines significant progress with regards to the CBDCs in jurisdictions like the Bahamas and Sweden. The think tank further pointed out that Sweden has already launched an e-krona development program to enable the country’s plan to go cashless by 2025.
The stability and security of the euro will be overtaken by China’s digital yuan project if Europe does not develop its own CBDC by 2025, the report forecasted. It further stressed the need for the ECB to establish a “suitable environment for the prosperity of the digital euro,” adding that fiat currency was at risk of losing its position in the global economy.
Philipp Sandner, head of the Frankfurt School Blockchain Center, criticised the ECB for its apparent lack of action:
“The ECB’s reaction has been too slow. Especially, the benefits from a CBDC for the industry, e.g., based on programmable money, are currently neglected. Given Libra and the [digital yuan], the ECB has to react quickly to keep its geopolitical position”.
The report further notes that while the digital yuan poses a threat to the euro, it is unlikely to overtake the US Dollar as the world’s reserve currency anytime soon.
“Launching a digital yuan will not unseat the dollar — at least not immediately,” dGen wrote. The digital yuan has low chances of beating the dollar due to “political unrest in China and the effort of shifting reserves and invoicing,” the report added.
Written By: Harshini Nag