The Biden team looks at a potential threat from China’s digital yuan plans

Photographer: Yan Cong / Bloomberg

The Biden administration is stepping up scrutiny over China’s plans for a digital yuan, with some officials worried that the move could start a long-term bid to overthrow the dollar as the world’s dominant reserve currency, according to people familiar with the matter.

Now that China’s digital currency efforts are growing, officials from the Treasury, the State Department, the Pentagon and the National Security Council are stepping up their efforts to understand the potential implications, people said.

US officials are less concerned about an immediate challenge to the current structure of the global financial system, but are keen to understand how the digital yuan will be distributed and whether it could be used to resolve US sanctions, people said on condition of anonymity.

A Treasury spokeswoman declined to comment. A National Security Council spokeswoman did not respond to a request for comment.

The People’s Bank of China has launched the trial issuance of a digital yuan in cities across the country, putting it on track to be the first major central bank to issue a virtual currency. A wider launch is expected for the Beijing Winter Olympics next February, giving the effort international exposure.

Many key details of the digital yuan are still changing, including information on how it would be distributed. The recent establishment of China a the association with SWIFT, the messaging link that most cross-border settlements go through today, suggests that a digital yuan may work within the current financial architecture rather than outside it.

US officials are confident that China’s intentions are not to use the digital yuan to evade US sanctions, according to people familiar with the matter. The current dominance of the dollar in cross-border transactions gives the US Treasury the power to disrupt much of the business or even a country’s access to the global financial system.

Chinese officials say the main intentions of the digital yuan are to replace banknotes and coins, reduce incentives to use cryptocurrencies and complement the current private-sector electronic payment system – dominated by Ant Group Co.’s Alipay and WeChat Pay from Tencent Holdings Ltd. PBOC has been working for years on the digital yuan, also called e-CNY, setting up a specialized research team in 2014.

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“To provide a reserve or redundancy for the retail payment system, the central bank needs to step up” and provide digital currency services, Mu Changchun, director of the PBOC’s digital currency research institute, said at a month-long event. past.

PBOC is also examining the potential of using the digital yuan in cross-border payments, launching a project studying the issue with a unit of the Bank for International Settlements, together with the United Arab Emirates, Thailand and the Hong Kong Monetary Authority.

The Biden administration does not currently intend to take any action to counter the longer-term threats in China’s digital currency, people familiar with the talks said. However, China’s plans have given new impetus to efforts to consider creating a digital dollar, they said.

Members of Congress were also increasingly interested in a digital dollar, aware of China’s movements, and asked Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen about the issue in hearings. earlier this year.

Powell said in February that the Fed was looking “very closely” at a digital dollar. “We do not need to be the first. We need to understand. ”

Yellen expressed interest in researching the viability of a digital dollar, a move from the lack of enthusiasm of his predecessor, Steven Mnuchin.