China digital currency: could Beijing’s advanced e-yuan replace smaller Asian currencies?
- Financial authorities are weighing threats to monetary sovereignty as the race to launch a central bank digital currency (CBDC) heats up
- The Bank of International Settlement says there is potential for a major CBDC, like the digital yuan, to replace smaller currencies
Central banks around the world are developing sovereign digital currencies to improve international payments, but one concern that has emerged is that a foreign digital currency could displace a domestic one, especially in smaller Asian nations with less effective financial systems, analysts said.
There is potential for a major central bank digital currency (CBDC) to make inroads into daily transactions, causing harmful spillover effects in the domestic financial market and challenging monetary sovereignty, according to a report released on Wednesday by the Bank of International Settlement (BIS) Innovation Hub.
In a so-called multi-central bank digital currency bridge project, the BIS and central banks from China, Hong Kong, Thailand, the United Arab Emirates are tackling regulatory complexities and transparency issues related to cross-border payments.
“At the heart of the discussion on the international dimension is whether CBDCs will infringe upon a country’s sovereignty,” said Benoît Cœuré, head of the BIS Innovation Hub. “We don’t want CBDCs to be caught in the crosshairs of a technology war.”
