China wants to go global over its quest for cryptocurrency predominance as it has proposed a digital currency that would be based on a basket of currencies including the Chinese yuan, Japanese yen, South Korean won and Hong Kong dollar.
The proposed Pan-Asian digital currency is planned by the private-sector to rival Facebook’s Libra and challenge the USD’s supremacy. A report by the Nikkei Asian Review on June 14 noted that the proposed digital currency is backed by China.
The plan to create an East Asian digital currency was revealed at a high-level political advisory meeting on May 21. The proposal noted that the economic scale of the associated economies will determine the ratios of endorsement.
The proposal looks forward to the establishment of a cross-border payment network in which businesses will make deals with each other using digital wallets. According to supporters, the essence of the network is to expand global trade because it will limit the risk of foreign exchange volatility and ensure smooth transactions.
In the words of analysts to Nikkei, another possible merit of such a payment network is supporting the free trade agreement under negotiations by Japan, China and South Korea, thereby coming up with a trade zone without dependence on the USD.
As China continues with its plans to disrupt the USD, reports have it that China’s apex bank has started tests on the digital yuan in April, in Shenzhen and four other places. China’s plan was motivated by Facebook’s announcement to introduce Libra, which was initially pegged to a basket of fiat currencies, since its amendment to stablecoins.
If the digital yuan is incorporated into an East Asian digital currency scheme it would have broader globalization. According to Nikkei Asian Review, “China’s digital basket currency plan demonstrates that a public-private collaboration is burgeoning in that country to design and promote a cross-border digital currency with the yuan at its core.”