China seeks to reduce dependence on dollar, proposes to issue Asian yuan

In light of the global adoption of CBDCs, China has proposed an Asia-wide digital currency to reduce economic dependence on the US dollar.

Asia depends on the dollar

USD is the most widely used international currency. International monetary policy is also based on the US dollar. The economies of many countries rely on USD for international exchange and trade, while other currencies are pegged to USD.

Research shows that the Asian region is heavily dependent on USD for international transactions at the expense of their local currency. This reflects that these countries are in a state of inability to be financed in local currency.

China, Korea and to some extent, Japan, even the most developed countries in Asia, also rely on the USD. Dollar-driven international finance leaves economies vulnerable to spillovers from the United States.

This economic hole is what China sought to eliminate with the introduction of the Asian yuan. According to Chinese researchers, the Asian yuan token, a pan-Asian digital currency, aims to reduce the dependence of the Asian USD on international businesses.

The Asian Yuan Token will be pegged to the currencies of 13 ASEAN member countries

Cryptocurrencies and USD are popular in Southeast Asia for faster money transfers, currency inflation prevention and international business.

Researchers Liu Dongmin, Song Shuang and Zhou Xuezhi of the Chinese Academy of Social Sciences (CASS) published their views in the September issue of the Journal of World Affairs. Asia’s yuan-denominated token will reduce Asia’s dependence on USD.

Like CBDC, the researchers think distributed ledger technology (DLT) will support Asian tokens. The token will be pegged to 13 currencies, including the currencies of the 10 Association of Southeast Asian Nations (ASEAN) member countries. The other three currencies that will form the token peg are the Chinese yuan, the Japanese yen, and the Korean won.

More than 20 years of prolonged economic integration in East Asia has laid the groundwork for monetary cooperation in the region. The researchers believe that the conditions are ripe for the establishment of an Asian yuan token. The South China Morning online post that shared the issue was published on October 10.

The researchers are members of the Institute of World Economics and Politics, a CASS-affiliated research unit affiliated with the Journal of World Affairs. World Affairs Magazine is also affiliated with China’s Ministry of Foreign Affairs.

China’s CBDC Pilot Hits a Milestone

Meanwhile, China’s CBDC pilot has reached a major milestone weeks after the announcement of its Asian yuan token study. On October 10, the Bank of China said its e-CNY pilot had traded around $14 billion (100 billion yuan). It further revealed that nearly 5.6 million merchant stores support the digital yuan.

The central bank of China, along with the central banks of Thailand, UAE and Hong Kong, is also part of the multi-authority cross-border payments CBDC pilot Inthanon-LionROCK. In September, the Bank for International Settlements (BIS) announced that it had successfully completed the cross-border payments CBDC pilot.

The announcement reveals over $22 million in transactions within a month on the BIS Multi CBDC Bridge platform.