China recently conducted tests of cross-border transactions with its new digital yuan. The dry test consisted of more than 160 payments totaling more than $22 million moved.
50,000 participants where randomly selected from countries included Hong Kong, Thailand, and the United Arab Emirates, in addition to China itself. This comes at a time when the Chinese government has successfully deployed its digital yuan domestically.
Would the digital Yuan come with an expiration date if it becomes a global reserve currency?
While details about features have not been revealed, global macro analysts have been following the developments closely.
The curtain has been lifted and China could propose a digital currency with expiration date. If the digital yuan will have an expiration date is still unclear yet rumors are often followed by literal implementation.
Leaked information about the digital yuan suggest that the design consists of a removal of the currency from the bank accounts of users who have not used it in the time the government stipulates.
A global standard for fiat currencies has already been proposed by China, which received support from its neighbor Russia. Russian authorities have signaled their interest in making international payments using currencies other than the dollar, which may accelerate the global trend of CBDC deployment. Taking the aforementioned events into consideration, how does this affect the US and its dollare empire?
This directly affects the US. The dollar has been used on a global scale to empower international transactions, including the buying and selling of commodities especially oil. This originated the petrodollar, a system that is now threatened by China, and others.
Perhaps foreshadowing latest developments in the currency wars, China had signed an agreement with Saudi Arabia to buy oil through the yuan at least 6 years ago. That action was enhanced after the U.S. military withdrawal from Afghanistan and a more austere White House regarding the planned murder by the Saudis of journalist Jamal Khashoggi.
It is therefore no wonder that China has plans to become independent from the petrodollar, since the reserve currency status gives the issuing country or body the power to choose who can and cannot participate in the global financial system.
Further, the exorbitant privilege as a powerful political, economic, and even military weapon, a global reserve is a favorable status for any world power’s currency to attain.
Once major country imposes CBDCs, it will likely result in several countries joining the race and implement their CBDCs as well. Whether sheer military power will be used again to establish a new reserve currency will be the most interesting dynamic we will observe in coming years.
With Bitcoin, a neutral and peaceful alternative exists and hopefully many more countries will join this ‘third path’ and become independent from violent superpowers.