The U.S. Needs a Digital Dollar to Counter China’s Threat, Lawmaker Says

Daren Fonda   Thu, June 3, 2021, 12:46 PM

Some lawmakers in Congress view China’s new digital currency as a growing threat to the dollar, and they’re urging the Federal Reserve to get moving on a digital dollar.  A bipartisan bill introduced in the House in late May, dubbed the 21st Century Dollar Act, aims to enshrine the dollar as the “primary global reserve currency.” It would require the Treasury to report within six months on efforts to develop a digital dollar.

The measure also targets China’s global currency aspirations. The bill requires the Treasury to assess the risks to the U.S. posed by China’s new digital renminbi, launched last year in a domestic pilot program ahead of a broader rollout expected for the Beijing Winter Olympics in 2022.

“China is playing a long game to displace the dollar and our capital market system with a global economy that has China as the center,” said Rep. French Hill (R., Ark.), a co-sponsor of the bill, in an interview with Barron’s. The digital renminbi, he adds, “contributes to the Chinese currency becoming more acceptable for commercial purposes, sovereign and consumer payments.”

Hill, who co-sponsored the bill last week with Rep. Jim Himes (D., Conn.), argues that the digital renminbi could also be used for repayment of China’s vast loans to countries in Asia, Africa, and other regions, potentially displacing the dollar. And he says that China is developing telecom equipment and payment technology, including peer-to-peer mobile apps, aimed at extending the country’s geopolitical and economic influence.

“The evolution of payment technology in China is challenging the dollar-based monetary system in place since World War II,” Hill says. “The Treasury and Fed need to have a key strategy and policies to maintain the dollar’s supremacy.”

China’s digital renminbi is far from challenging the dollar in global commerce. Along with other hard currencies like the yen, euro, and British pound, the dollar dominates global trade and foreign-currency reserves held by banks and consumers.

The renminbi, also known as the yuan, accounts for 2.4% of global payments, versus 38% for the dollar, according to the Society for Worldwide Interbank Financial Telecommunications. Yet the yuan has been climbing the charts, now ranking fifth for global transactions, up from 35th in October 2010, according to Bloomberg. China has stated that it isn’t developing a digital currency to challenge the dollar.

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