Trading

Regional CBDCs Can Fuel International Trade, but USD Seems Unbeatable – Cointelegraph

As central bank digital currencies continue to be researched and tested by countries across the globe, it becomes more apparent that the United States dollar’s reign might be challenged once the concept is implemented on a regional scale.

While most retail CBDCs focus on internal economic matters, some projects aim to facilitate trade relations within a specific region, forming a digital alternative to the greenback. The most eloquent example would be the East Asia cryptocurrency that was proposed earlier in June — a virtual asset backed by a basket of currencies including the Chinese yuan, Japanese yen, South Korean won and Hong Kong dollar.

So, do regional CBDCs have the actual power to dethrone the dollar, or are they better off as domestic market products?

Brief introduction to the dollar’s dominance 

The United States dollar remains the undisputed king when it comes to international trade. According to the International Monetary Fund, around 61% of all foreign exchange reserves are allocated in the dollar as of 2019. Similarly, the U.S. sovereign currency serves as the main medium for cross-border deals, even for deals not involving the U.S. itself. For instance, 86% of India’s imports are paid for in dollars, while only 5% of them actually originate in the U.S.

In fact, the dollar has been as dominant as ever — at least until the COVID-19 pandemic cast a dark cloud over the global economy. A 2019 Source…