Chinese government researchers are mulling over the idea of a pan-Asian digital currency linked to at least 13 local fiat currencies. These include the Chinese yuan, the Japanese yen, the South Korean won, and ten other currencies belonging to member states of the Association of Southeast Asian Nations (ASEAN).
The development of the pan-Asian digital currency is due to concern over the growing dominance of the U.S. dollar in the world. According to these Chinese government researchers, a common Asian digital currency would reduce the region’s dependence on the US dollar. In addition, it would subsequently promote and preserve financial stability.
Chinese state researchers are betting big on the plausibility of a pan-Asian digital currency, as they believe the conditions are right for its creation. Moreover, plans to strengthen ASEAN regional monetary cooperation while reducing dependence on the greenback are part of a broader context. China is attempting to consolidate its position as a global leader in digital currency development and exert increasing global influence. This also comes against a backdrop of threats of financial decoupling of the East Asian country by the U.S. government.
Speaking on the prospect of an Asia-wide digital token, Chinese Academy of Social Sciences researchers Song Shuang, Liu Dongmin and Zhou Xuezhi said:
“More than 20 years of deep economic integration in East Asia has laid a good foundation for regional monetary cooperation. The conditions for the establishment of the Asian yuan have gradually been formed.”
U.S. rate hikes unfavorable to Asian foreign reserves also trigger the need for a regional crypto.
Chinese state researchers also mention the negative impact of aggressive US rate hikes on Asian foreign exchange reserves. This unsavory development occurred primarily through financial market volatility. Chinese state researchers explained that:
“East Asian countries have long settled their trade in U.S. dollars, which exacerbated currency mismatches and exchange rate risks. This was the trigger for the 1997 Asian financial crisis.”
During that ’97 Asian financial crisis, Malaysian Prime Minister Mahathir Mohamad first proposed a common currency for East Asia. In 2019, Mahathir Mohamad again pushed for the replacement of the U.S. dollar with a common-denomination Asian digital token.
The reports also provide insight into the relationship between the proposed Asian-centric digital currency and each of the ASEAN currencies. The weighting of each could be based on the International Monetary Fund’s Special Drawing Rights, which are an international reserve asset.
In addition, distributed blockchain technology supports digital currency, preventing the dominance of any one country. In addition, this support also neutralizes barriers to monetary cooperation in the region.
China should take the lead in the pan-Asian digital currency initiative
China, the world’s second largest economy, will most likely spearhead the proposed Asian digital currency. The East Asian giant has already conducted extensive testing of its own sovereign digital currency, the digital yuan (e-CNY). Digital yuan pilots reportedly took place a few months ago in 23 major cities, primarily for small retail payments. By the end of August, it had been accepted by 5.6 million merchants and 100 billion yuan ($13.9 billion) in cumulative transactions.
The e-CNY does not yet have a specific timeline for its launch. In addition, according to China, the digital yuan data will have a limited scope of control.