The introduction of central bank digital currency and China’s weight in the global economy
On 12 February 2021, the Institute for Foreign Affairs and Trade (IFAT) hosted an online roundtable discussion with the title Introduction of central bank digital currency and China’s weight in the global economy. Mr. Pál Péter Kolozsi, director of Hungarian National Bank and Mr. Dániel Nagy, researcher and former director of Hold Investment Fund were participating as panelists.
In his preliminary remarks Pál Péter Kolozsi underlined that digital transformation is a challenge for state systems and central banks respond to this challenge by introducing a currency that fits to the digital age. In his opinion the rollout of central bank digital currencies (CBDC) would generate drastic changes in financial systems and even in the life of societies. As for the hegemony of the US dollar he emphasised that a currency can gain global dominance in case the issuer country’s financial system is appropriate and other players are also keen on using the currency. In case of China, it remains to be seen whether the country will be able to meet these criteria. Currently the Chinese state restricts certain capital flows, while the yuan has multiple exchange rates.
Dániel Nagy highlighted that as for now only probable scenarios can be discussed regarding CBDC and the virtual Chinese currency. It is expected that the digital yuan could make cross-border financial settlements cheaper and more comfortable which may boost its international rollout. The expert does not anticipate that due to the digital version the yuan would replace the dollar as the global dominant currency, however it may cut the dollar’s hegemony to a certain extent. The Belt and Road Initiative provides a good platform for China to cooperate with other countries in bypassing the dollar-based settlement system.
Regarding China it has been emphasised that the country’s growing global influence will not necessarily be boosted by financial tools, rather the successful management of the COVID-19 crisis and the Belt and Road Initiative. The two experts agreed on that through the launch of CBDC, states might prevent that the appearance of cryptocurrencies would disintegrate their financial systems. Moreover, CBDC may effectively support crisis management efforts and maintaining the state control over financial transactions.
The full recording (in Hungarian) is available at the link below or on our YouTube channel!