Kenji Okamura, the vice-finance minister of Japan’s international affairs department, or referred to as the top currency diplomat of the country has voiced his concern about the rapid development of the Chinese CBDC.
It was expected to see some kind of pushback or alarm from Japan’s side as it continues to lose the economics battle against China in the Far East. Having such a huge economy suddenly has the first-mover advantage in something as crucial and important as a digital currency is sure to shift the economic balance of the region much further.
However, this is not something that Japan cannot change in the future. They can also develop their own CBDC, but the argument here is the speed at which China has developed its plans. No matter if Japan starts creating a CBDC at this exact moment, China will still be months ahead and preparing for launch.
The only real precautions that Japan could potentially take at this stage are emergency regulations towards digital currencies in general. This would help to limit the amount of Chinese influence on local markets, but will not do too much against the Chinese CBDC’s influence over regions such as South-East Asia or the overall ASEAN region.
Having a nationalized digital currency can be an absolutely devastating weapon against other economies, especially considering the amount of export that is coming out of China. If there was a country that would benefit from a CBDC it would be the CPR. First of all, the country has the means to force trading partners to use the CBDC in the future as cutting off relations for imports is just out of the question for the majority of countries bringing in goods from China. Then, all there is to do about the currency is to manage it in a way that benefits China the most. This could quickly develop from an economics topic to a geopolitical topic requiring serious analysis and discussion.
Imagine if we were in the early bronze age. Everybody was trading with whatever they could and suddenly a large country that was supplying everybody with necessary goods starts using gold coins. Everybody would switch to it, right? Why? Because it’s more convenient and you get some advantages with the supplier if you use it.
That’s basically the scenario we are looking at with the CBDC nearing completion. Almost all the smaller countries depending on Chinese imports will have to adopt the CBDC, thus further entrapping themselves under Chinese influence. And Japan being one of the most ardent critics of China, is trying everything in its power to prevent any further influence to travel towards Beijing.
Sure, China will have the advantage due to a headstart, but it will have to somehow maintain the status quo and keep its CBDC as relevant for partner countries as possible. The moment countries like Japan, the UK, the US, or Germany decide it’s time for their own CBDC is when we get ourselves and an economic battlefield.
It is very likely for these major economies to start vying for digital currency dominance once they’re all equipped with it. Similar to how we see an extremely competitive market for fiat currencies nowadays, it’s likely that we will have a similar situation in the future. However, in that digital future, with things looking the way they’re looking now, we’re not going to have USD dominance, but Digital Yuan dominance.
Whether that’s something the countries can accept remains to be seen.
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