The Crypto-Renminbi Challenge To the Dollar: Maybe not soon, but it's coming.

• Author: Lo, Chi

While the Chinese renminbi is not expected to displace the U.S. dollar as the world's dominant global currency in the medium term, its creeping challenge to erode the global dominance of the dollar is certainly intensifying.

The latest challenge comes in the form of an official digital renminbi. The wakeup call of the renminbi challenge came from a message that went viral on April 30, 2020, on social media, and was picked up and reported by a few newspapers that China was set to exclude the U.S. dollar in its stock exchange transactions and that the People's Bank of China would de-link the renminbi from the U.S. dollar by stop-setting the exchange rate's daily fixing. The message claimed that the move to oust the U.S. dollar amounted to an economic war against America that would lead to a sharp fall in the dollar against the renminbi. The viral message also attributed its claims to a report by The Guardian on April 28, 2020, on the People's Bank of China's imminent launch of its official digital currency.

Upon fact checking and with hindsight, most of the viral message was just fake news, with no official announcement supporting the claims of ousting the U.S. dollar from Chinese stock transactions and scrapping the renminbi-U.S. dollar fixing, except the part on China launching an official digital renminbi. Indeed, China's digital currency move was not a surprise, as the fake news put it. China started experimenting with its official digital currency beginning in December 2019 in the technology hubs and industrial cities of Shenzhen and Suzhou. The Guardian report only confirmed that Beijing had added more cities (Chengdu and Xiong'an) to the experiment, which is a normal Chinese practice before any policy initiatives are rolled out on a national scale.

The digital currency move by China should also make the world nervous about a potential digital currency war between China and the United States rocking the global financial system. For China, a national digital currency could help deepen the renminbi internationalization process and challenge the prevailing international monetary order that the U.S. dollar dominates.

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