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China has big plans for a financial revolution

China has big plans for a financial revolution

It’s no secret that China and the United States have long been at odds. From additional US import tariffs to closer cooperation between China and Russia, it’s getting more intense by the day.

China also wants a financial system independent of America’s. For this reason, intensive work is being done on blockchain technology. A new payment system must be able to completely bypass SWIFT and the US dollar.

China wants to compete with the US

Bloomberg writes that America and Europe are increasingly concerned about China’s progress in moving away from the US dollar. The country has developed a new platform for foreign currency trading called mBridge. This platform has been in development since 2017, but the progress is reportedly going very fast now.

The Forex Market (aka foreign exchange market or Forex in technical jargon) is huge, but the US dollar still has the upper hand here. About half of the $32 trillion traded annually is denominated in dollars. China is not happy about this, fearing that the US could impose tougher sanctions on China. After all, this has already happened against Russia.

The mBridge platform must therefore bypass the dollar, the American banking system and the American payment system SWIFT used by banks. Instead of dollars, China’s digital yuan would be offered as an attractive alternative to the dollar.

According to the American investment bank, mBridge is very attractive for interested countries. For example, this would reduce the transaction speed of international payments from up to five days to just a few seconds. The platform was developed in cooperation with the Swiss Bank for International Settlements (BIS) and China is already working with Thailand, Hong Kong and the United Arab Emirates (UAE).

“Trade impact of digital yuan remains limited”

Such initiatives could reduce the use of the dollar somewhat,” warns Eswar Prasad, a professor at Cornell University. For example, the reserves of central banks around the world are made up of 60% dollars and another 20% euros. That could be less in the future.

In any case, the Chinese yuan would not have the power to really compete with the US dollar. An important reason for this is the fact that there is hardly any trading in the yuan.

The digital yuan, like the digital euro, is a central bank digital currency (CBDC) or regular fiat currency issued on a centralized blockchain. In addition, the project is not only intended for international trade. China is already well ahead of some other countries with civil servants already being paid in the CBDC. Meanwhile, Europe and the US are still working on the right regulations before the central bank can start issuing such tokens.

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