The e-dollar project is live: and how it differs from the e-yuan

Yesterday, the Digital Dollar Project launched five pilot programs to test out the e-dollar. In this article, we dissect the differences between the e-dollar and the e-yuan, and shed some light on of the hinge points around international competition and currency influence.

Key takeaways:

  • Central Bank Digital Currencies (CBDC) are state-backed digital currencies which could replace or co-exist with fiat currency.
  • Why a US CBCD now? Cryptos, general payment systems, and China.
  • Digital currencies will offer political and international trade privileges.
  • E-yuan vs. e-dollar: blockchain for US, centralization for China, and privacy for US vs. convenience for China.
  • Is the e-yuan a threat to the greenback dominance? Yes. Despite the Yuan representing only 2.5% of reserve currencies vs 60% with the USD, digital currencies will play a key role as 5G roles out and societies move away from cash.


What is a Central Bank Digital Currencies, ‘‘CBDC’’s

In our October explainer of CBDC, we described the key points you should know about central bank digital currencies. CBDC is a currency innovation that will drastically change the economic order of trade and exchange, especially in terms of how central banks distribute, track, and automate transactions and spending.

Seven major central banks have tried and researched the use of CBDCs, with China being the most recent example of a fully deployed digital currency. While some say the bitcoin surge, stimulus checks, and the cashless society trends are reasons for a rise in digital state-backed currencies, others argue that things like the digital yuan exist mainly as a countermeasure to the power the greenback (the USD).

Why is the US rolling out a CBDC now?

First, governments around the globe want to fend off the ‘threat’ cryptocurrencies like Bitcoin pose to the authority central banks have over their economies. As we speak, an increasing share of retail trader wallets is beginning to allocate towards cryptocurrencies because investors see Bitcoin as a haven asset to cash to hedge for inflation (despite volatility seen in cryptos over the years).

Secondly, CBDCs will improve general payment systems, which are filled to the brim with inefficiencies and rent seeking behavior. Payments and fiat currencies are recorded digitally today, but they are not natively originated on a blockchain, which implies a major difference between how a tokenized dollar and cash move in society. A CBDC will help curtail terrorist activity and fraud.

Lastly, the US realizes the importance of upgrading its currency infrastructure as other countries like China are beginning to expose their regions with new ways by which to do business, ways that are not denominated in US dollars. America does not like this scenario.


What the US digital currency project entails

Coming straight out of the Digital Dollar Project white paper, ‘‘The Project views the infrastructure underpinning the US dollar as a critically important public good and believes that upgrading this infrastructure will provide current and future generations enhanced flexibility, optionality, stability, and prosperity.’’

In other words, the foundation behind this project (working jointly with Accenture) is rolling out a tokenized dollar to improve the position of the US dollar has around the world, and solve the same problems the Chinese see with things like intermediary costs and time inefficiencies in fiat currency.

The project needs to balance both the jurisprudence around the Fourth Amendment (privacy rights in the US), and not getting in the way of the US dollar’s strength. Furthermore, because foreign policy is so directly tied to domestic well-being, the United States cannot take its current position as the world’s currency for granted, hence the project.

The paper speaks to this stating that, ‘‘the dollar’s primacy is at risk if it remains anchored in its analog state (inclusive of its manual processes and legacy infrastructure) while other leading central banks are advancing considerations for central bank digital currencies. If the dollar is to retain its preeminent role, it must remain up to date and technologically competitive’’.

Digital currencies are being developed for political ends and international trade privileges, and so it makes sense for large economies to begin off shooting their currency’s ‘‘software update’’.


How the e-yuan differs from the e-dollar

The federal reserve is keen on deploying a digital greenback but stated that getting it right the first time is of utmost importance. Getting it right partly means getting the values behind the e-dollar to match the society’s expectations around privacy vs. convenience.

The West and the East differ greatly on this subject. For example, in China, only 10% of survey respondents said they cared about privacy versus 22% of Americans (for Germany the figure jumps to 42%!).

The e-yuan has been criticized by the West for lacking some of the private aspects that cash may offer, hence further pinning the e-yuan as a tool for ‘authoritarianism’. Because of its digital infrastructure, the e-yuan grants financial authorities control over anonymity and traceability of exchanges, something the e-dollar will have more difficult implementing from a constitutional standpoint.

Another purpose behind the e-yuan is to move away from a cash-based society which according to recent research conducted by Deutsche Bank’s Marion Laboure, is already in motion in China via digital wallets and broad culture acceptance. Western societies are much further behind in their tolerance for a cashless world compared to Chinese citizens who have long been used to the idea via applications like WeChat.

According to the new patents registered by the PBoC, official speeches and press releases, the e-yuan is not built on a blockchain. In other words, the e-RMB will be centralized and issued first by the central bank to commercial banks before being put into circulation as opposed to the typical decentralized network blockchains produce. In contrast, the US will tokenize its e-dollar.

The e-yuan easily tracks transactions and pins them to individual citizens because payment methods include traceable bar codes, tap-to-go and even facial recognition. These methods are also available for offline interactions mainly to facilitate trade in the poorer parts of the country, especially those regions with no to little internet access.


Is the e-Yuan a threat to the US Dollar?

One common argument for the US rolling out a digital greenback is to combat the digital yuan’s first mover advantage. We do not think it’s purely reactionary because the digital greenback has been in the making for years, and rumors of its probable existence have always been public knowledge. Again, the e-dollar is not a reaction to the e-yuan, it is just taking more time to deploy out of MIT.

However, the Chinese said their intent was to facilitate international trade and investment and let the market ‘naturally’ chose whichever currency fits best. This argument clearly creates unease in the American camp, not accustomed to direct assault on the greenback. This goes without saying since a dominant CBDC could see financing cost and financial transactions privileges, much like the US dollar has today. Therefore folks think an e-dollar is reactionary.

A caveat: China is one of the most developed nations in terms of mobile usership and digital payment tolerance which means an e-yuan could quickly scale and establish itself domestically. While e-yuan authorities have emphasized that first stages will focus on domestic trade, they implied that the long-term goal would be for international trade.



There are two key concepts to retain from this article: what a e-dollar does, and why it is being deployed now.

The what: The e-dollar is a currency infrastructure update to keep the greenback future-proof and competitive from a trade standpoint.

The why: Foreign policy and domestic economics are tied to the hip. A dislodging of the US dollar would equate to domestic pressure on things like inflation and thus the American consumption-led economy. The e-dollar project is not happening just for fun, it is a serious societal project that will re-shape the world our children’s children grow up in.


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