China’s digital yuan will not overthrow the dollar’s reign, said a top US Securities and Exchange Commission official (SEC). And this is because of the growth of dollar-backed stablecoins.
Central banks around the world are working on the digitized version of their fiat currency with an aim to improve the payments system.
The People’s Bank of China (PBOC) is leading this race of a central bank digital currency (CBDC) as it extends the trials of digital yuan to more cities and even across borders in Hong Kong.
This fast pace of China has some worried that the yuan could gain dominance over the dollar, the world’s leading reserve currency. But according to Hester Peirce, aka “Crypto Mom,” the rise of stablecoins wouldn’t let that happen. she said,
“Even in 2021, there’s been a tremendous growth in stablecoins – these are essentially private digital dollars.”
“That, effectively, may be our answer to the Chinese CBDC (central bank digital currency). It may be just private stablecoins.”
“If they’re dollar-backed, then I think that the dollar will still be quite relevant,” said Peirce during a digital currency event.
According to the International Monetary Fund, the dollar accounted for almost 60% of the world’s official foreign exchange reserves at the end of 2020, while China’s share is just 2.25%.
Stablecoins, meanwhile, are on their way to surpass $100 million in market cap, with Tether the dominant stablecoin has a market cap of $51 billion alone, which is managing over $20 billion in trading volume every day. Tether’s on-chain volume has reached $754 billion YTD, already 2% higher than the total volume transacted in 2020, per IntoTheBlock.
On the topic of a digital dollar, Federal Reserve Chairman Jerome Powell said this week that China’s digital yuan plans wouldn’t push them to rush its own CBDC plans, adding that China’s approach won’t work in the US.
“It is far more important to get it right than it is to do it fast,” Powell said.
“The currency that is being used in China is not one that would work here. It’s one that really allows the government to see every payment for which it is used in real time.”
The US central bank is taking its time to understand digital currencies, he said. “Central bank digital currencies are now possible,” Powell said.
“We need to understand whether that is something that would be a good thing for the people that we serve.”
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