In China, researchers propose an ‘Asian digital currency’ as a counterweight to the dollar

Researchers from a Chinese state institution have floated the idea of a pan-Asian digital currency to reduce the region’s economies’ dependence on the U.S. dollar. The report comes from SCMP.

According to the publication, the initiative is aimed at strengthening China’s economic influence over neighbouring countries and reducing the risks of potential financial restrictions by Washington.

“More than two decades of deep economic integration in East Asia have laid a good foundation for currency cooperation. The conditions for the preparation of the Asian yuan have formed,” said researchers Cun Shuang, Lu Dongmin, and Zhou Xuezhi from the Institute of World Economics and Politics of the Chinese Academy of Social Sciences.

According to them, the digital token could be pegged to a basket of 13 currencies, including the yuan, the Japanese yen, the South Korean won, and the national currencies of other ASEAN members.

The weights of each could be determined similarly to the IMF’s Special Drawing Rights mechanism — a global reserve asset.

Distributed ledger technology would underpin the digital currency, preventing control by any single country, the experts say.

Their initial study was published in the Journal of the Ministry of Foreign Affairs of China.

Experts noted that a pan-Asian digital currency would reduce the region’s dependence on the dollar and strengthen financial stability. In their view, aggressive rate hikes by the Fed raise volatility in financial markets and negatively affect the foreign exchange reserves of Asian countries.

“East Asian countries have long settled their trade through the U.S. dollar, boosting currency misalignment and exchange-rate risks. This served as a trigger for the 1997 financial crisis in the region,” the researchers stressed.

China is actively testing the digital yuan, with the total volume of transactions with it by the end of summer surpassed 100 billion e-CNY (~$14 billion). Officials say the digital currency is intended for domestic use, but the central bank is exploring international use of the e-CNY with Thailand, the UAE and Hong Kong, the publication noted.

Chinese experts proposed creating a department under the ASEAN macroeconomic research organisation, based in Singapore, to work on the pan-Asian digital currency. Ultimately, the initiative could be turned into an Asian analogue of the IMF.

International use of the token should begin among major institutions — central banks, commercial financial institutions and goods-and-investment trading firms, the researchers added.

Earlier, in March, U.S. Senator Pat Toomey stated that the digital yuan poses a threat to national security.

Deutsche Bank analysts also suggested that the use of the e-CNY in external trade could undermine the dollar’s dominance.

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