The US dollar is getting weaker as CDBC are gaining momentum

According to the new International monetary fund report, the world reserve in dollars in the fourth quarter of 2020 reached the 25-year low. Will the digital euro and yuan be getting stronger?

New minimums of the world currency

The International monetary fund has recently presented a report that claims that the world finance may face the change of the paradigm regarding the US dollar. Analysts believe that along with the growth in the number of competing currencies such as euro and the Chinese yuan which are ready to pass to the digital form, the US dollar dominance may decline.

Central bank digital currency has to compete with two obstacles in order to challenge dollar, and these two are the competition with private cryptocurrencies

as a store of value and inflation protection, and the regulatory uncertainty regarding the implementation of CDBCs.

according to the International monetary fund report the fourth quarter of 2020 recorded the fall in the monetary dollar funds to the record low in the last 25 years – 59%. Last time a decrease by 60% was recorded in 1995.

Although the US dollar remains to be the world dominating reserve currency, the downward tendency make many think of the possible reasons for this decrease, and will dollar’s positions get worse.

Some refer to the consolidation of countries that quit the dollar zone, and the  raise of the status of competing currencies such as euro, Japanese yen and Chinese yuan as to the factors of dollar collapse. But others claim that even considering the Chinese achievements in digital yuan development, dollar’s hegemony is not yet facing the real competition. Besides, the DCEP (digital yuan) has different plans.

Changing financial landscape

“In order to make the digital yuan a serious competitor to the US dollar and euro, the Chinese regulators should change their policy to let yuan float freely on the world currency exchanges. And no one sees the tendencies that this will happen in the nearest time”, said Andrew Work, co-founder and CEO of Lion Rock Institute in Hong  in the email sent to Forkast.News.

But this may be a completely different historic mission of yuan in Asia and among countries that consider China to be their main trading partner.

“The opportunity to see, trace and recall the digital yuan may give more confidence to China’s central bank, and let it integrate the plan for DCEP acceptance by the neighbouring countries like Cambodia and Laos which are their partners, and replace the usage of dollar there. Philippines may also become the goal for displacing the local currency and dollar”, said Work, “While other jurisdictions may restrict the usage of digital yuan, it would be hard for these countries to say “no”, even if their own currency becomes the second level player in their own borders”.

Although digital currencies will likely fail to outshine dollar in the nearest time, analysts claim that the IMF report may indicate the slow change away from the US dollar as the major players start choosing alternative assets for their reserve portfolios.