Michael Hasenstab
APRIL 2021

The writer is chief investment officer for Templeton Global Macro

Markets have been gripped by cryptocurrency fever. The price of bitcoin has attained new highs while debate has raged over the emergence of cryptocurrency technology.
But these may be a sideshow for a big developing trend — the rapid digitalisation of the renminbi.
This shift, combined with other macroeconomic and political factors, could be the key that accelerates the decline of the dollar’s dominance as the world’s leading reserve currency. It could also hasten the acceptance of the renminbi as the main rival to the US currency.
Central banks around the world have been grappling in recent years with the concept of digital currency technology.
Few nations, though, are as aggressive as China in their approach to developing a so-called central bank digital currency.
Such a currency would be overseen by a central governmental authority, removing the element of anonymity that is fundamental to the decentralised, blockchain-ledger of popularised cryptocurrencies like bitcoin or ethereum.
The theoretical benefits of government oversight of these new digital assets are numerous.
CBDCs allow for greater prevention of fraud or crime, enable instantaneous international transactions, reduce transaction costs, permit greater financial inclusion and aid the provision of direct fiscal stimulus to individual citizens.
For China, adoption of a CBDC both within and beyond its borders would allow its financial system to reduce reliance on the dollar and limit the role and oversight of foreign financial institutions and regulators. While many countries have started discussing the potential future application of CBDCs, China has pushed ahead with development.
In April 2020, Beijing piloted a digital currency in four cities, allowing commercial banks to run internal tests converting between cash and digital money, account-balance checks, and payments. The pilot programme expanded to 28 major cities in August. Aiming for broad circulation in 2022, China plans to test the digital currency in additional major cities, including Beijing and Shanghai, this year.
This pioneering approach should accelerate the elevation of the renminbi on the world stage. Some users outside China, particularly in the US, might be reluctant to use a digital currency controlled by China. However, early adoption in parts of Asia, Latin America and Africa is likely to proceed significantly faster.
Global reserve currencies’ relative importance historically is explained by the macroeconomist Barry Eichengreen. Currencies are more prized as reserve assets when they satisfy two conditions: first, when they are stable, liquid and widely used in international transactions; and second, when they are backed by a country to which another state has important security links.
China’s development in recent years puts it on a clear path to satisfy these criteria as its government has maintained relative policy stability. The country accounted for 16 per cent of global output in 2019, but the renminbi represented a little over 2 per cent of global reserves as of the second quarter last year.
Lack of renminbi-denominated assets for foreigners to own has inhibited its rise as a reserve currency. But now the renminbi will be supported by the Chinese authorities opening their $15tn domestic bond market to foreign participants. Greater demand for these bonds will push down yields, lowering borrowing costs.
More important, if China captures the first-mover advantage to meet the world’s demand for use of digital currencies to settle international financial transactions and own digital assets, the appeal of its CBDC could rise sharply.
China has also made great strides in invoicing its trade in renminbi. The security and geopolitical rationale for holding renminbi has become stronger through such measures as China’s Belt and Road Initiative financing of projects in developing countries.
Covid-19 might also be a catalyst for the greater acceptance of the renminbi as a global reserve currency. The economic carnage of the pandemic has sent already large fiscal deficits ballooning and driven even more accommodative monetary policy in the US.
This historically unique combination of impending massive fiscal and vaccine-led growth, where short-term interest rates are anchored at zero, will expand an already large current account deficit, putting further pressure on the value of the dollar.
The digitalisation of the renminbi will add to these economic and geopolitical factors. This will have a durable, transformative impact on the international economy.


https://www.ft.com/content/3fe905e7-8b9b-4782-bf2d-fc4f45496915?referrer=amp-unreadable

Very true oh! Even me am beginning to love this crypto shit.

Currency war

While nigeria is dealing with cow matter, a great reset is happening. China moving itself to be number one, imagine the data and information their central bank will have once this goes mainstream.

JimiJunji:
While nigeria is dealing with cow matter, a great reset is happening. China moving itself to be number one, imagine the data and information their central bank will have once this goes mainstream.

Bro....the potential and power this is going to give China is every smart dictator's wet dream, they can track the spending pattarns of their citizens, control money flow to perfection and unlimited data that would give any data analyst a hard on...and if they're finally able to overthrow USD as global reserve currency.... it's game over for the US.

TheLionofLasigi:


Bro....the potential and power this is going to give China is every smart dictator's wet dream, they can track the spending pattarns of their citizens, control money flow to perfection and unlimited data that would give any data analyst a hard on...and if they're finally able to overthrow USD as global reserve currency.... it's game over for the US.

Lol, one thing with china is that It's a dictatorship with vision, they can cut through the horseshit and bureaucracy, them overthrowing america is highly possible, the development of china in less than a 120 years has never been recorded in the history of mankind, if you check the level of nigeria and china in the 1960s and today you'd get embarrassed about calling yourself a Nigerian. The dollar is a dinosaur about to go extinct.

JimiJunji:


Lol, one thing with china is that It's a dictatorship with vision, they can cut through the horseshit and bureaucracy, them overthrowing america is highly possible, the development of china in less than a 120 years has never been recorded in the history of mankind, if you check the level of nigeria and china in the 1960s and today you'd get embarrassed about calling yourself a Nigerian. The dollar is a dinosaur about to go extinct.

With negative and 0 rates in eurozone and the US I can't really dispute that with you although the chinks also devalue.

This is what the whole crypto ban is all about..... China's end game.

UK govcoin comes to mind.

Rossiminku:


Typical naive, self-hating perspective devoid of research or historical context.

China, your ''dictatorship with a vision'', paid a VERY HEAVY PRICE, and is still paying it, in terms of civil liberties and freedom. Literally MILLIONS have been killed and jailed by that dictatorship in the last half-century, to enforce the socio-economic measures required for the current economic transformation.

From total import bans which forced everyone to ride in bicycles for decades right up till the 1990s, to enforced 1 family one child laws, to bans on politics, free speech, and freedom of association, heightened surveillance of the citizenry to the point of absolute paranoia, among other rights breaches.

Here's the question: ARE WE in Nigeria prepared to accept THOSE BRUTAL CONDITIONS so that in 30 or 40 years time, we can be a massive economic power like China?

If the answer is NO, then stop comparing yourself to China.

Nonsense Western propaganda. Stop watching BBC and CNN.

rottennaija:


Nonsense Western propaganda. Stop watching BBC and CNN.

You woke up one night to write your own opinion without watching or reading articles??

Your favorites

Global Times.. China
Russian Times Russia

Sputnik News Russia

michresakidjo:


You woke up one night to write your own opinion without watching or reading articles??

Your favorites

Global Times.. China
Russian Times Russia

Sputnik News Russia

I didnt write the article neither are the videos I share in my post mine.

Rossiminku:


Typical naive, self-hating perspective devoid of research or historical context.

China, your ''dictatorship with a vision'', paid a VERY HEAVY PRICE, and is still paying it, in terms of civil liberties and freedom. Literally MILLIONS have been killed and jailed by that dictatorship in the last half-century, to enforce the socio-economic measures required for the current economic transformation.

From total import bans which forced everyone to ride in bicycles for decades right up till the 1990s, to enforced 1 family one child laws, to bans on politics, free speech, and freedom of association, heightened surveillance of the citizenry to the point of absolute paranoia, among other rights breaches.

Here's the question: ARE WE in Nigeria prepared to accept THOSE BRUTAL CONDITIONS so that in 30 or 40 years time, we can be a massive economic power like China?

If the answer is NO, then stop comparing yourself to China.

Your first statement says you're not worth having a reasonable conversation with and you only want to flex your little quick facts, I know about Mao's great leap forward policy that caused the starvation of 80million chinese, to the one child policy and the cultural revolution that prosecuted intellectuals and religious bodies; my cousin in grade 6 knows most this stuff, but being on a faceless forum doesn't mean you should act mannerless or starting statements with insults to show you have a superior argument, you can pass your opinions without being crass and indolent. Learn how to talk when contributing to public discussions, am sure you weren't raised in a barn.