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Central Bank Digital Currency (CBDC), a form of digital currency issued by a country’s central bank, is gaining popularity in global monetary policy circles. Proponents of CBDCs suggest that these currencies promote financial inclusion, privacy, transferability, convenience, and financial security for businesses and consumers. CBDCs are also expected to simplify the execution of monetary and fiscal policies. 
With most international trade currently denominated in dollars, CBDCs could potentially facilitate non-dollar trade by reducing the complexity and costs of cross-border transactions, providing lower-cost options for alternative money transfer methods. 
The Atlantic Council GeoEconomic Center’s CBDC Tracker reveals that 114 countries, representing over 95% of global GDP, are examining CBDCs. CBDCs are being considered, tested, or used by 90% of the global central banks, as reported by Reuters. 
While the US lags behind other influential global trade and commerce countries in CBDC development, this slow adoption could allow other nations to shape CBDC standards, potentially diminishing the popularity of the dollar in inter-regional and intra-regional trade. 
<h2 id="h-global-cbdc-race-heats-up-russia-japan-and-ukraine-joining">Global CBDC race heats up: Russia, Japan, and Ukraine joining</h2> 
The competition to develop CBDCs is intensifying as Russia, Japan, and Ukraine announce plans to launch their pilot programs by the end of 2023. Other countries, including Australia, Thailand, Brazil, and South Korea, are also gearing up for CBDC pilot testing in 2023. Notably, China, Hong Kong, and India, have already launched their digital currency pilot programs. 
In January 2023, finance ministers of the Eurozone countries expressed their commitment to supporting the digital Euro initiative, with the European Central Bank moving into technical considerations during the investigation phase of their digital euro project. 
More recently, the Bank of England is reportedly hiring as many as 30 people to develop a CBDC, signaling the bank’s serious commitment to a digital pound. 
The global CBDC race is gaining momentum with countries around the world actively exploring and advancing their digital currency initiatives. 
<h2 id="h-multicurrency-cbdcs-arrangements-to-reduce-global-demand-for-dollars-among-large-economies">Multicurrency CBDCs arrangements to reduce global demand for dollars among large economies</h2> 
The increased adoption of CBDCs worldwide could lead to the emergence of multicurrency CBDCs (MCBDCs) that reduce the global reliance on the US dollar. 
MCBDCs could enable countries to conduct imports and exports based on domestic currency rates, eliminating the need for holding dollars in reserve. This trend is particularly relevant for Asian currencies that are subject to capital controls and are not easily exchangeable. 
Experts believe that MCBDCs could become a reality sooner than expected due to government support and the progress made by organizations like the Bank for International Settlements (BIS). 
The BIS has suggested that regional platforms for multiple CBDCs may be more feasible than a single global platform, with initiatives like the mBridge project between China, Hong Kong, Thailand, and the UAE already underway. 
In 2020, the central banks of UAE and Saudi Arabia launched Aber Project to explore the feasibility of a dual-issued digital currency for domestic as well as cross-border settlement. Likewise, the Bank for International Settlements (BIS) Innovation Hub and the central banks of Malaysia, Singapore, South Africa, and Australia announced the completion of a prototype platform for cross-border transactions using multiple wholesale CBDCs, also known as Project Dunbar ,in March 2022. 
Plausibly, the implicit goal of these multi-CBDC arrangements is the de-dollarization of intra-Asian cross-border payments, as they attempt to support the use of domestic currencies in cross-border settlements and protect monetary sovereignty from being jeopardized by the use of foreign currencies. These systems, while not yet prepared for full launch, have the potential to enable countries to bypass the Society for Worldwide Interbank Financial Telecommunications (SWIFT) and create an alternative financial framework. 
<h2 id="h-china-as-a-first-mover-and-an-ambitious-rival">China as a first mover and an ambitious rival</h2> 
<a href="https://www.unlock-bc.com/99980/the-shifting-tide-how-powerful-nations-abandoning-the-dollar-could-impact-the-cryptocurrency-industry/" class="ek-link">China is making significant strides towards disrupting the USD-led international financial order</a> with its ambitious plan to establish the yuan as the next global currency. With the introduction of the digital yuan, also known as e-CNY, China has taken the lead in digital payments systems, surpassing the United States. Over 260 million people in China now have digital yuan wallets, giving China a first-mover advantage in influencing global standards for CBDCs. 
While there is ongoing debate among analysts on whether the digital yuan can dethrone the U.S. dollar in the near future, it is clear that China has a long way to go. Currently, the dollar dominates major financial transactions, including energy markets, accounting for 96% of world trade, while the yuan only represents 2% in 2022. Moreover, the yuan accounts for a mere 3% of global currency reserves, compared to the dollar’s 60%. However, China’s digital yuan project has the potential to turn this dent into a crater if it can successfully establish an alternative to the dollar-dominated payment systems. 
The digital yuan is not a magic bullet for China’s internationalization aspirations, but if used effectively, it could boost China’s prospects and challenge the dollar’s hegemony in international finance. With the U.S. Federal Reserve lagging behind in CBDC initiatives, China currently faces little credible competition in the CBDC sphere. China’s ability to conduct large-scale pilots of a well-designed CBDC is a testament to its growing capabilities and ambitions. 
However, relaxation of China’s capital controls is crucial for the digital yuan to make a significant impact on the dollar’s reserve status. Currently, the yuan’s global liquidity is limited by capital controls, and a radical change in Chinese monetary policy would be necessary for it to match the dollar’s status. Trust in Chinese institutions and the willingness of the rest of the world to embrace digital currencies as a payment instrument are also important factors for the success of the digital yuan. Competition from other digital currencies could also hinder China’s ambitions to establish yuan-dominated digital payment highways. 
To gain parity with the dollar, several changes need to occur. The People’s Bank of China (PBOC) has to allow free trade of the yuan and loosen its peg to the U.S. dollar. Transparency regarding the PBOC’s intentions with the yuan, as well as greater transparency in China’s financial markets and stable monetary policies driven by macroeconomic principles, are also necessary. 
While some Western policy-makers and scholars believe that establishing a yuan-centric model will be a long and challenging process for China, China’s drive, innovative technology, and backlash against USD sanctions could potentially expedite the timeline. If successful, the digital yuan may dramatically reduce the time needed to achieve China’s strategic objectives. 
<h2 id="h-brics-coalition-takes-steps-towards-an-alternative-to-the-us-dollar">BRICS coalition takes steps towards an alternative to the US dollar</h2> 
Russia is leveraging stablecoins and a CBDC to challenge the supremacy of the US dollar as the world’s primary currency. Originally slated for launch in 2024, Russia’s digital rupee is now expected to be unveiled before the end of this year, with plans to encourage other BRICS countries (Brazil, China, Russia, and India) to explore the creation of their own trade currency. 
A senior Russian official has hinted that a new currency project may be announced at the upcoming BRICS summit in South Africa. The alliance’s members have been making significant moves to bypass the US-dominated global trade and finance system, with the transition to settlements in national currencies being the first step, followed by the circulation of a new currency in the near future, possibly in digital or other forms. This project’s readiness will likely be indicated at the upcoming BRICS summit in August. 
The new currency is expected to be based on a strategy that does not rely on the US dollar or euro, and may be pegged to the value of not just gold, but also other resources such as rare-earth minerals or soil. 
The U.S. should inevitably pay considerable attention to the movements of BRICS alliance as the current BRICS countries already represent 40% of the global population and one-fourth of the global GDP, and the alliance is set to expand further with Iran and Saudi Arabia in the process of joining, and over 10 other countries expressing interest. 
<h2 id="h-will-cbdcs-be-the-optimal-path-ahead">Will CBDCs be the optimal path ahead?</h2> 
CBDCs have the potential to bring several benefits to the financial system, such as cost reduction, improved payment efficiency, increased transparency, enhanced financial inclusion. However, there are also concerns raised by detractors of CBDCs. They worry that CBDCs could lead to complete financial surveillance and erosion of privacy, in contrast to pseudonymous peer-to-peer networks like bitcoin. Even with regulated KYC/AML measures, some fear that CBDCs could give governments excessive control over individuals and transactions, including the ability to block and impose taxes at will. 
Critics argue that CBDCs contradict the main advantage of cryptocurrencies, which is to give individuals full control over their money without interference from banks or governments. CBDCs are seen as an improved version of online banking, closer to digital cash, and far from the vision of a truly decentralized digital currency. 
However, countries like China and India, who have capital controls in place, are interested in CBDCs as they allow for centralized control over money flow, unlike cryptocurrencies that operate on public blockchains. As we are in an era where the majority of people still do not fully recognize the benefits of cryptocurrencies or are at least not ready to use them, countries are racing to adopt CBDCs, which offer some advantages of cryptocurrencies while retaining centralized control. 
Contrary to the belief that CBDCs will compete with cryptocurrencies, some argue that the launch of CBDCs could actually drive adoption of cryptocurrencies in regions where digital currencies are needed the most. Once people become comfortable with digital wallets and transactions using CBDCs, they may be more open to considering cryptocurrencies as an alternative to government-issued currencies that may have failed them in the past. 
Moreover, when CBDCs are used for payments within other blockchain-based services like supply chain management, gaming, or NFTs, it could boost the wider crypto ecosystem, driving demand for cryptocurrencies and native crypto tokens required for DeFi and Web3 governance. 
In conclusion, CBDCs have both pros and cons, with potential impacts on financial systems and crypto adoption. While they offer certain benefits, they also raise concerns about privacy and government control. CBDCs could shape the landscape of digital currencies and impact the adoption of cryptocurrencies, but the ultimate outcome remains to be seen. 
 
The post <a rel="nofollow" href="https://www.unlock-bc.com/100342/astrongcbdcs-gain-traction-is-the-us-dollars-dominance-at-riskstronga/">CBDCs Gain Traction: Is the U.S. Dollar’s Dominance at Risk?</a> appeared first on <a rel="nofollow" href="https://www.unlock-bc.com">UNLOCK Blockchain</a>.

CBDCs Gain Traction: Is the U.S. Dollar’s Dominance at Risk?

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