12.04.202111:09 Forex Analysis & Reviews: Who will win between the US dollar and Chinese digital yuan?

The market perceived the confrontation between the major world currencies as a pattern. However, the situation changes when digital assets enter. Now, who will win between the digital yuan and fiat dollar?

The intrigue in the global market is created by the confrontation between the "digital" and "traditional" currencies, in particular the Chinese and American ones. Experts are worried that China's virtual asset will displace the USD in the global financial system in the near future. The administration of the US President Joe Biden, who is trying to calculate the consequences of the use of digital CNY, started this assumption. They are concerned that the use of a virtual analogue of China will deprive the USD of its status as the world's main currency.

There is a rising uncertainty amid tensions over the near-term outlook for the US economy. What worsens the situation were comments by Jerome Powell, Fed Chairman, who claims that the US economy is at a turning point. He is confident that the current recession will be followed by growth. According to him, the key factors in the recovery of the US economy are the successful vaccination against COVID-19 and substantial monetary policy support measures (PREP).

Experts say that the leadership of the digital yuan can disrupt this halt. The White House is afraid of building up the potential of the virtual CNY, which can displace the US dollar from its pedestal in the medium term. Another important issue facing the Joe Biden administration is the possibility of using the digital yuan to circumvent sanctions. Analysts are not sure about the "anti-sanctions" power of the digital CNY, but they do not rule out its increase in the long-term planning range.

Washington pays special attention to the consequences of the development of the digital yuan for the global financial system. Experts admit that the virtual asset of the People's Republic of China can be used in cyber attacks in the future. Previously, J. Powell stated the importance of this threat, emphasizing that protecting against cyber-attacks takes more "time, energy and money" than solving economic issues.

Currently, the White House does not intend to counter threats to China's virtual currency, although it closely monitors it. The US authorities admit the possibility of creating a digital dollar, a potential competitor to the CNY. To get more information on this issue, Joe Biden's administration asked Fed Chairman Jerome Powell and US Treasury Janet Yellen.

Chinese developers of this digital currency are confident in their victory, although they recognize the dominance of the US dollar. In this situation, Beijing has taken a wait-and-see attitude, which irritates Washington, forcing the latter to build up its economic protection. Therefore, experts are having a hard time to answer how the confrontation between the means of payment of both powers will end.

China is the leader among global developers of its own digital currency at the moment. According to preliminary estimates, the use of virtual CNY is possible even without a cellular signal and Internet access. It is expected that the innovative currency of the People's Republic of China will work similarly to PTS transactions through existing payment applications. Unlike other virtual assets, the digital yuan will be controlled by the government. It can be recalled that in August 2020, representatives of the People's Bank of China (PBOC) announced closed tests of the digital yuan, held in several cities of the country.