U.S. president Donald Trump's power struggle with China was perhaps the defining feature of his presidency, until the coronavirus COVID-19 pandemic struck.
The pandemic—and subsequent lockdowns—crashed global markets and pushed investors around the world toward the safety of the almighty dollar.
But the U.S. dollar's days as the world's reserve currency could be numbered, with some of the biggest ever changes to government-backed central bank currencies looming—and China leading the field.
Casual discussions around central bank digital currencies, sometimes called CBDCs, have been going on for the last few years.
Digital currencies would work just like regular coins and notes issued by central banks but exist entirely online. Instead of printing or minting currency, the central banks would issue digital dollars via online accounts—similar to the commercial banking apps that have exploded in popularity in recent years.
Employers could, theoretically, pay directly into these government-run accounts and both online and physical stores could accept payment from them. Foreign exchange could also be handled through them, easing the flow of international trade.
The long-running debate among central bankers over the need for digital currencies was blown wide open last year by news of Facebook's libra project—something that almost saw the social media giant elevate itself to (or even above) central bank status as an issuer of the first global currency.
World leaders and regulators slapped Facebook back down.
"We have only one real currency in the U.S.A., and it is stronger than ever, both dependable and reliable," Trump said last year in a Twitter tirade against Facebook's libra, as well as bitcoin and cryptocurrencies—scarce digital assets that were the inspiration for libra.
"[The dollar] is by far the most dominant currency anywhere in the world, and it will always stay that way."
Libra is expected to launch later this year, though somewhat reduced from Facebook chief executive Mark Zuckerberg's original vision.
Some U.S. lawmakers have proposed the creation of digital dollars and so-called FedAccounts as part of stimulus bills designed to offset the economic damage wrought by coronavirus-induced lockdowns.
These have so far been excluded from final bills and may never get through a divided Congress—perhaps leaving Facebook's libra as a defacto digital dollar.
"The big battle for global financial supremacy could be between the digital yuan and Facebook's libra dollar, a digital version of the U.S. dollar," said financial author and trading veteran Glen Goodman, who made a name for himself by successfully navigating stock markets during the 2008 global financial crisis and has been closely following the development of central bank digital currencies.
"Both of these currencies may be launched as soon as this year and will make it quicker, cheaper and more efficient to buy, sell or transfer money from place to place. China will pull out all the stops to convince international trading partners to switch from the dollar to their new currency. If they manage to lure enough users, the U.S. dollar could be in deep trouble."
Battle lines are now being drawn but the war could be measured in decades and not years.
"Given the risks inherent to such a transformation, China will phase in the CBDC very gradually," journalists at the widely-respected Economistnewspaper wrote this week, pointing to analysis from Citic Securities that estimates it will take "several years for the digital yuan to replace just about 10% of all physical cash in China."
Donald Trump's first term as U.S. president may have been marked by his trade war with China; but if he wins a second he could go down in history as the president that saw the U.S. dollar fall from grace.
This article originally appeared on Forbes.
