Experts from an economic institute in China have floated the idea of creating a blockchain-powered digital currency that could reduce Asia’s dependence on the greenback. The initiative comes amid an expanding digital yuan pilot project and after recent trials of cross-border payments with state-issued digital currencies in the region.
China Suggests Minting Asia-Wide Digital Yuan Leveraging Distributed Ledger Technology
Chinese government researchers have proposed the introduction of a new digital currency in Asia to reduce the region’s reliance on US fiat currency. The common coin would also help preserve financial stability while strengthening regional monetary cooperation, they say, as quoted by the South China Morning Post this week.
According to Song Shuang, Liu Dongmin and Zhou Xuezhi of the Chinese Academy of Social Sciences’ Institute of Global Economics and Politics, the digital token would be pegged to a basket of 13 currencies, including the Chinese yuan, Japanese yen, the South Korean won and those of the 10 members of ASEAN, the Association of Southeast Asian Nations.
The weighting of each could be similar to that of the International Monetary Fund’s special drawing rights that serve as an international reserve asset, the report details. Distributed ledger technology could be used to support the proposed currency. Such an approach would seek to prevent dominance by any one of the participating countries.
“More than 20 years of deep economic integration in East Asia have laid a good foundation for regional monetary cooperation. The conditions for the establishment of the Asian yuan have gradually been formed, ”write the researchers in an article published in August by the journal World Affairs – an edition affiliated with the Chinese Ministry of Foreign Affairs – then posted online at the end of September.
China is likely to lead a new Asian digital currency project if it gets support
This is not the first initiative to create a regional currency in Asia. Other examples include Malaysian Prime Minister Mahathir Mohamad’s proposal made during the 1997 Asian Financial Crisis, which he repeated in 2019, as well as the Japanese-led Asian Development Bank’s plan for an Asian Currency Unit. (ACU) from 2006.
The latest move, if it materializes, will likely be led by China, which is currently the world’s second-largest economy and is constantly expanding the pilot zone for its own sovereign digital currency, the digital yuan. The People’s Bank of China (PBOC) recently announced that e-CNY payments exceeded 100 billion yuan (nearly $14 billion) in 360 million transactions by the end of August.
Although the Chinese government maintains that its central bank digital currency (CBDC) is primarily intended for domestic use – around two dozen major cities are participating in the tests with more than 5.6 million merchants accepting the coin – the PBOC is also exploring cross-border settlements, together with the monetary authorities of Hong Kong, Thailand and the United Arab Emirates.
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