Can Digital Yuan Challenge US Dollar's Dominance in International Finance?

by Riaz Haq

Mar 1, 2021

China's central bank is testing its digital currency in several major Chinese cities. The chairman of US Federal Reserve has recently confirmed that the US Central Bank is working on digital dollar. The State Bank of Pakistan announced in 2019 that it was developing a digital currency. It seems that the popularity of Bitcoin has triggered serious worries of loss of control of the official financial systems among the central bankers around the world. China's substantial lead in digital currency could put it far ahead of the US in the future of global payments and financial settlement. It could eventually displace the US dollar and provide China with the immense global financial power that the US currently enjoys. 

Digital Yuan

Central Bank Digital Currency (CBDC):

What Is a Central Bank Digital Currency (CBDC)?  Investopedia defines it as a digital currency that "uses a blockchain-based token to represent the digital form of a fiat currency of a particular nation (or region)". A CBDC is centralized; it is issued and regulated by the  country's Central Bank. Unlike decentralized cryptocurrencies like Bitcoin, a CBDC would be centralized and regulated by a country's monetary authority.  


Motivations for such currencies are many, but the key one is to maintain control of the national and global finance. Another worry is that the use of unregulated digital currencies like Bitcoin could enable serious domestic and international crimes. It could also make tax evasion easier and hurt governments' ability to support public expenditure on education, healthcare, physical infrastructure, public safety, national defense and other priorities. 
 
Digital Yuan:
 
The People’s Bank of China, the Chinese Central Bank, is testing its e-yuan digital currency in Shanghai, Chengdu and other major cities. It has filed more than 100 patent applications for its digital currency. Reports indicate that the experiments are going smoothly, and soon people will have the option of downloading a government-issued digital wallet. Unlike commercial payment processors such as WeChat Pay and Alipay, the official Chinese version will be equivalent to an account at the central bank with the same guarantee as hard cash, according to The Economist magazine.  China is far ahead of of the rest of the world, including the United States in the development of a central bank-backed digital currency (CBDC). This could put it far ahead in the future of global payments and financial settlement. It could eventually displace the dollar and provide China with the immense global financial power that the US currently enjoys. 
China has set up a partnership with SWIFT, the Society for Worldwide Interbank Financial Telecommunications, that manages the global system for cross-border payments, through its digital currency research institute and clearing center.  SWIFT is a major vehicle for the United States to enforce its unilateral sanctions on countries like Iran, North Korea and Venezuela. China offers CIPS, cross-border interbank payment system, as an alternative to SWIFT. CIPS has only about 80 member banks worldwide compared to over 11,000 banks using SWIFT. 
Digital Dollar: 
US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have confirmed last week that they are working on digital dollar as a high-priority project. 
US Treasury Secretary Janel Yellen has been quoted by the media as saying: “I gather that people at the Federal Reserve Bank of Boston are working with researchers at MIT to study the properties of it. We do have a problem with financial inclusion. Too many Americans really don’t have access to easy payment systems and bank accounts. This is something that a digital dollar, a central bank digital currency, could help with. I think it could result in faster, safer and cheaper payments.”  
Digital Rupee: 
A top official of the State Bank of Pakistan, the nation's central bank, announced in April 2019 that the institution aims to issue a digital currency (Central Bank Digital Currency or CBDC) by 2025, according to media reports.   Speaking at the launch of regulations of Electronic Money Institutions (EMIs), central bank officials said that EMIs will be non-bank entities to be licensed by the central bank to issue e-money for the purpose of digital payments. Pakistan's finance minister Asad Umar and the central bankers said they are targeting Pakistan's economy to go fully digital by 2030.
More recently, the State Bank of Pakistan launched Raast, a digital payment system.  It is essentially a pipe that is intended to connect government and financial institutions with consumers and merchants with each other to process payments instantly at very low cost. Raast will be boosted by Pakistan government's decision to use it to pay salaries, pensions and pay welfare recipients under Benazir Income Support and Ehsaas Emergency Cash programs. 
Raast digital payment infrastructure represents a great leap forward for the use of financial technology (FinTech) and financial inclusion in the  country.  It will also promote e-commerce in Pakistan. Undocumented economy poses a serious threat to the country because it creates opportunities for criminal activities and tax evasion.  Raast is part of the government's effort to modernize payment systems and document the nation's cash-based informal economy. 
America's Global Financial Power: 
There's a common perception that the United State is abusing its extraordinary financial power to arbitrarily punish countries through its unilateral financial sanctions. This power stems mainly from the fact that the US dollar is the main international reserve and trade currency. It allows US to control multi-lateral financial institutions like SWIFT, World Bank, IMF and FATF. Many countries, including major US allies in Europe, are now looking to find alternatives to SWIFT. This has been specially true since former US President Donald Trump existed the JCPOA (Joint Comprehensive Plan of Action) agreed among the 5 permanent members of the UN Security Council (P5) plus Germany. Here's an excerpt of a recent New York op ed by Peter Beinart: 
"By deluding themselves about the extent of America’s might, they are depleting it. A key source of America’s power is the dollar, which serves as the reserve currency for much of the globe. It’s because so many foreign banks and businesses conduct their international transactions in dollars that America’s secondary sanctions scare them so much. But the more Washington wields the dollar to bully non-Americans into participating in our sieges, the greater their incentive to find an alternative to the dollar. The search for a substitute is already accelerating. And the fewer dollars non-Americans want, the harder Americans will find it to keep living beyond their means."
 
Summary:
Central Bank Digital Currencies (CDBDs) are gaining momentum with the talk of digital yuan and digital dollar. Motivations for such currencies are many, but the key one is to maintain control of the national and global trade and financial systems. If successful, these new currencies and associated payment systems could challenge the global financial power of the United States and fundamentally transform banking as we know it. 
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  • Riaz Haq

    Saudi Arabia privately hinted earlier this year it might sell some European debt holdings if the Group of Seven decided to seize almost $300 billion of Russia's frozen assets, people familiar with the matter said, according to Bloomberg.

    https://www.middleeasteye.net/news/saudi-arabia-threatened-sell-eur...

    Like other Gulf states, Saudi Arabia’s currency is pegged to the dollar and it sells its oil in greenbacks, boosting the dollar’s position as the world’s reserve currency.

    In January 2023, Saudi Arabia said it was considering trading in currencies other than the US dollar after reports that it was in discussions with China about selling some crude in yuan.

    It’s not clear how much European debt Saudi Arabia holds, but its central bank’s net foreign currency reserves stand at $445bn. Saudi Arabia holds $135.9bn in US treasuries, placing it 17th among investors in the US bonds.

    US President Joe Biden’s pledge to make Saudi Arabia “a pariah” over the murder of Middle East Eye and Washington Post columnist Jamal Khashoggi crystallised fears that Washington could one day turn on its decades-old ally.

    Biden has since pivoted and is leaning on Saudi Arabia to seal a normalisation deal with Israel and play a role in post-war governance of the Gaza Strip.

    -------

    Like other Gulf states, Saudi Arabia’s currency is pegged to the dollar and it sells its oil in greenbacks, boosting the dollar’s position as the world’s reserve currency.

    In January 2023, Saudi Arabia said it was considering trading in currencies other than the US dollar after reports that it was in discussions with China about selling some crude in yuan.

    It’s not clear how much European debt Saudi Arabia holds, but its central bank’s net foreign currency reserves stand at $445bn. Saudi Arabia holds $135.9bn in US treasuries, placing it 17th among investors in the US bonds.

    US President Joe Biden’s pledge to make Saudi Arabia “a pariah” over the murder of Middle East Eye and Washington Post columnist Jamal Khashoggi crystallised fears that Washington could one day turn on its decades-old ally.

    Biden has since pivoted and is leaning on Saudi Arabia to seal a normalisation deal with Israel and play a role in post-war governance of the Gaza Strip.

    Saudi Arabia’s threat underscores concerns in wealthy Gulf states that the West could one day apply similar economic levers it is pulling against Russia to Gulf powers' overseas assets, if criticism of human rights issues in the Gulf or their foreign policy decisions resurfaces.

    Russian President Vladimir Putin has courted Saudi Arabia, as he relies on the oil-rich kingdom to counter Moscow’s isolation on the world stage and shore up energy markets.

    Putin made a rare visit to Saudi Arabia and the UAE in December.

    Jul 9, 2024

  • Riaz Haq

    Pakistan To Legalize Crypto Trading To Boost Foreign Investment

    By Godfrey Mwirigi

    https://themarketperiodical.com/2025/03/20/pakistan-to-legalize-cry...


    Pakistan plans a legal framework for crypto trading to attract foreign investment.
    The Pakistan Crypto Council will regulate blockchain integration.
    The government aims to promote crypto adoption through structured policies.
    Pakistan is preparing to introduce a legal framework for crypto trading to attract foreign investment and support its digital economy.



    The move aims to establish clear regulations for digital assets, aligning with global trends and increasing interest in blockchain technology. Authorities expect the new framework to create a structured environment for crypto adoption while ensuring financial security and stability.

    Pakistan Moves to Regulate Crypto Trading
    Pakistan ranks among the top ten countries in global crypto adoption, with millions actively participating in crypto trading. Despite warnings from the central bank, crypto has gained widespread popularity in the country, which is the fifth most populous nation.

    The government aims to regulate this fast-growing sector to create an environment that attracts international investors. The plan follows the recent appointment of Bilal bin Saqib as Chief Advisor to the Finance Minister for managing digital assets.

    His role includes guiding policies on digital finance and advising on artificial intelligence for public sector efficiency. Meanwhile, Asian policymakers are showing increasing support for the digital assets industry, which is influenced by global trends.

    Under President Donald Trump, the United States has prioritised crypto. This prompted other nations to reconsider their stance on the industry. Pakistan is responding by developing policies. That position the country as a competitive player in digital finance.

    Pakistan Crypto Council to Establish Regulatory Standards
    Pakistan recently launched the Pakistan Crypto Council (PCC) to oversee blockchain integration, digital finance operations, and crypto trading. The council will work on policy development, compliance structures, and consumer protection.

    It aims to establish a secure framework for crypto adoption while ensuring financial stability. The leadership includes Finance Minister Muhammad Aurangzeb as chairman and Bilal bin Saqib as CEO.

    The council will engage international organisations to ensure the regulations align with industry standards. The government believes their involvement will help establish a legal framework to protect investors. This initiative aims to promote the responsible growth of digital assets.

    The council’s board includes representatives from the State Bank of Pakistan and Pakistan’s Securities and Exchange Commission. It also features the Federal IT Secretary as a member.

    Focusing on Digital Finance Development
    With technological advancements and the rise of blockchain and cryptocurrency, Pakistan is leading efforts to enhance its digital economy. These innovations position the country as a key player in the global digital landscape.

    Based on this foundation, the PCC aims to develop sustainable policies that encourage proper investments. It also seeks to provide adequate financial safeguards for the growth of digital assets.

    The council will engage with fintech startup firms, investors, and Blockchain developers to promote industry growth. The initiative fits into Pakistan’s strategic direction of using digital finance to advance the country’s economy.

    Thus, state authorities expect strict legislation to enhance transparency and increase investment. The council will also work on developing blockchain-based financial solutions to increase security in the sector.

    Mar 20

  • Riaz Haq

    Pakistan Central Bank to Launch Digital Currency Pilot Program Soon - CoinCentral

    https://coincentral.com/pakistan-central-bank-to-launch-digital-cur...

    Pakistan’s central bank is preparing to launch a pilot program for a central bank digital currency.
    The State Bank of Pakistan is finalizing the infrastructure and legal framework for the digital currency rollout.
    The pilot program is part of a broader strategy to modernize the financial system and adopt blockchain-based solutions.
    The government has passed the Virtual Assets Act 2025 to regulate and monitor the virtual asset industry.
    An independent regulator will be created to license and supervise crypto-related businesses across the country.

    Jul 9