China leads the development of central bank digital currency (CBDC ) in the world. Digital yuan has been already tested in some areas in China while Western nations have just started talking about CBDCs.
Six central banks such as ECB, Bank of England, Bank of Japan, are collaborating on the research of CBDC and reportedly held the first meeting just in April. Bank of Japan announced at the beginning of this month that they would start testing a digital yen although they didn’t specify when. The United States hasn’t even started officially talking about it. Last month, Chairman of the Federal Reserve Jerome Powell didn’t reveal any concrete progress on the digital dollar.
So, it seems that nothing is stopping the development of Chinese digital yuan.
However, Takaya Nakamura, an executive from the Japanese crypto exchange Fisco firmly believes that digital yuan will not prevail because of “the China dream.”
The China dream is a political slogan that President Xi Jinping revealed in 2012. It is a nationalistic slogan with the aim to achieve the Chinese dream of the great rejuvenation of the Chinese nation.
Speaking to Cointelegraph, Nakamura claimed that the China dream would hinder the mass adoption of digital yuan.
“I don’t think digital yuan will prevail,” he says.
As China, “the world’s factory”, is removed from the supply chains in the world due to the economic slowdown by the COVID-19 pandemic and American bashing, they will further strengthen the China dream to fuel patriotism and go through the crisis. This, according to Nakamura, leads to further isolation of China in the world’s economy.
“Chinese Communist Party (CCP) has to keep emphasizing the China dream otherwise they can’t maintain their unifying force and will be collapsed. But if they do it too much they will further isolate themselves in the world and lose their economic competitiveness. This is a negative spiral.”
According to Nakamura, as China gets removed from the world trading networks they will lose foreign currency reserves. Having enough foreign currency reserves will be crucial as China needs a transition time for digital yuan to break the US dollar hegemony.
“As long as you live in the time of US dollar hegemony, having foreign currency reserves is very important. Losing it will eventually make it difficult for China to push forward digital yuan.”
Nakamura concludes that China will have a chance only if the United States handles the situation horribly and does nothing during China’s transition time for digital yuan.