While the US explores digital currencies, China's eYuan is already in 15 cities. But experts say Beijing and Washington aren't actually competing in the same race.
Chinarolled out its digital yuanto its 15th city this month, while the US has only just started to explore a digital dollar.
- But some experts say that the dollar's global dominance means the spread of a digital yuan won't give China a leg up.
Policy makers in the US have given more attention to digital currencies in the past year, but China has already rolled out the digital yuan to its 15th city.
In the second half of 2021, the digital yuan, or eYuan, notched more than $8 billion worth of transactions. China had started developing its sovereign digital currency in 2014 after the success of e-commerce platforms Alibaba and Tencent.
Though the moves toward digitizing the yuan point to Beijing's bid to exert tighter capital controls, experts say that the global dominance of the dollar minimizes the threat of a rising Chinese
"The digital yuan isn't a play to displace the dollar necessarily, but it is likely more of a play to give the Chinese government more insight into flows of funds in the country," Aleksandar Tomic, Boston College economist and associate dean, told Insider.
The People's Bank of China announced this month it would push the digital yuan into four additional cities: Guangzhou, Hangzhou, Tianjin, and Chongqing.
Most transactions, Tomic said, are conducted via third-party, privately owned payments companues like Alipay and WeChat Pay, but this could change if use of the digital yuan expands.
Currently, the Chinese central bank is working to develop incentives for banks, technology firms, and local authorities to adopt the currency, the South China Morning Post reported.
China is at an advantage in that it can develop a new form of payment quicker than the US given that there's less political dissent, and Beijing can make controversial or potentially unpopular decisions with much less public debate, unlike US policymakers, Tomic explained. Importantly, if China could fully implement the digital yuan, it could act as a shield against future economic sanctions.
Meanwhile, Treasury Secretary Janet Yellen's recent speech on digital assets touched on a potential Federal digital currency, following up from President Biden's digital asset executive order from March.
Some analysts have said the US must be more aggressive to keep up with China's digital currency. Others, however, point out that the world's two largest economies don't seem to be aiming for the same thing.
The race for a digital dollar may not be a race
The comparatively rapid pace of development of China's CBDC may give the impression it is ahead of the US, but according to Ari Redbord, head of legal and government affairs at blockchain firm TRM, the strength of the US dollar as a global reserve
"The US still has a great lead on China even with their CBDC because of the general dominance of the dollar," Redbord told Insider. "Even if the digital yuan rolls out internationally, that doesn't mean people will trust it or want to adopt it."
The urgency surrounding a possible CBDC in the US is based on finding out whether there is any benefit, not whether America needs to keep up with China, Redbord added.
Tomic agreed, noting that the US simply isn't as committed as China yet to the idea of a CBDC, given that it is not as inclined to try and actively monitor the population's transactions.
"The US is still having the conversation on whether they even want to enter this 'digital dollar race,'" Tomic said, and adding a digital dollar to its reserve currency is not a major motivator. Part of this is because China's yuan, even with an added digital yuan, makes up a negligible portion of the global reserve currency.
If the US were to create a digital currency of its own, Redbord noted, it would look much different than China's digital yuan.
"A US digital dollar would have to have democratic principles baked into it," Redbord said. "China's digital yuan is more authoritarian, and gives the government visibility on everyone's transactions."
The digital yuan, says Tomic, comes down to China's ongoing attempt to exert more control over the flow of capital, but doesn't endanger the dollar's standing on the world stage.
"People trust the US government more to not use a digital currency as a tool of control. They aren't as likely as the Chinese government to actively try and monitor the population [using a CBDC]," Tomic said.
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