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IMF: digital yuan unlikely to replace USD

IMF: digital yuan unlikely to replace USD

It is hard to predict the exact reaction of the US dollar to the issuance of the digital yuan. As the Chinese project is approaching its final stage, more and more experts agree that the greenback has nothing to worry about. Thus, Gita Gopinath, chief economist of the International Monetary Fund, holds the same view. When discussing the prospects of the digital renminbi, she noted that it could hardly challenge the US dollar, especially in the near term. “In the case of China, they have said that their focus right now is for domestic use and that whenever they do go into cross border use, they will work with the international community to make sure that things go smoothly for the recipient country also,” the economist explained. She added that she was quite skeptical about the Chinese currency replacing the US dollar.  At present, USD has a leading role in global finance, international trade, and payment systems. Statistics are the best evidence of the US dollar dominance. So, any currency that would like to take over the role of the US dollar has to be very strong in multiple institutions. Obviously, this is not the case with the fiat yuan, let alone its digital version. Moreover, a country that plans to offer an alternative to the US dollar has to guarantee the rule of law, must have trusted public institutions and ensure protection for investors, which hardly applies to China. IMF’s chief economist added that there were many other requirements to be met.  “I would say that China is still in early stages on several of those infrastructure pieces that are still required to become a dominant currency in the world,” Gita Gopinath concluded.

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