How China’s Central Bank Digital Currency will help Renminbi to challenge dollar

China has been working on a Central Bank Digital Currency (CBDC) since 2014, but Facebook’s Libra seemed to create a new urgency. On the surface it appears the CBDC will be for domestic use, but a CBDC will simplify cross border transactions. For a long time, the country has been dissatisfied with the U.S. Dollar’s (USD) ongoing role as the global reserve currency and is committed to extending its currency’s reach. It even has an initiative to denominate international trade credit in Renminbi (RMB) rather than dollars. And the Belt and Road Initiative has seen China extend more than $1 trillion in foreign loans, often with terms that many claim are not repayable without help.

An international Renminbi?

China overtook the U.S. as the world’s largest goods trader in 2014. The country has been the leading exporter for a decade. Hence there is a disconnect between the highest proportion of the world’s trade going through China and its denomination in USD. Benoît Coeuré, Member of the Executive Board of the ECB, discussed the supremacy of the dollar in a recent speech. Despite the “remarkable rise of China in the global economy [and] its expanding role in international trade,” along with the creation of the Euro, the USD remains the dominant currency.

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