Is the Renminbi a Global Currency in the Making? Globalization of Digital yuan

Abstract

Since the global financial recession of 2008 and the subsequent sovereign debt crisis, the US economic supremacy has experienced setbacks. China has steadily grown into a dependable economic force across the globe, particularly in Asia. Is the renminbi on the verge of becoming a global currency given the financial domination setbacks of the US economy? In this critical review analysis, I contend that the dollar’s hegemonic position is at risk, but the political and economic climate does not appear to be ripe for renminbi globalization. The Chinese hawks see the economic sanctions levied against Russia following the Ukraine invasion as a chance to challenge the dominance of the US dollar. Furthermore, China has benefited from the first-mover advantage through the launching of the Central Bank Digital Currency. However, China must gain the trust of foreign users in the robustness of its financial system, economy, and digital yuan’s functionality for the globalization of the digital yuan to be effective. Moreover, to promote renminbi internalization, China must ease capital regulations, increase renminbi convertibility, and restructure its financial system.

The Changing Role of the US Dollar in the Global Monetary System of a Multipolar World

“…A particular example is China, often seen as the main protagonist. W. O. Alwago [9] explored the launch of the Central Bank Digital Currency (CBDC) or digital renminbi that gives the country the first mover advantage. Yet, K. Siddiqui [10] does not expect the renminbi to challenge the dollar materially in the next few decades.…”

“…7,8 It has the second largest population and labor force, marginally yielding to India, which recently took the lead. 9 China has second absolute spend on the military, equipped with nuclear weapons, and fortifies the country against direct encounters. 10 Its currency, Renminbi, is already a reserve currency with 3% of the global reserves, 11 which certain scholars predict to increase in the future [18].…”

RMB Internationalization

“…As previously mentioned, the US monetary sanctions that hindered Russia's access to its USD-denominated foreign exchange reserves after the invasion of Ukraine in 2022 have prompted President Putin to acknowledge the imperative of alternatives to the USD in trade transactions (Simes 2020). Simultaneously, Chinese leaders view these sanctions as an opening to challenge USD supremacy (Alwago 2022). In addition to increased RMB reserves held by the Russian Central Bank, RMB bilateral swap agreements can facilitate Russia's circumvention of these sanctions (Siddiqui 2021).…”