markets becoming real competitors to America’s in the near future. On the other hand, as long as the RMB is not freely convertible and China keeps its capital account closed, holdings of RMBs will be slow to rise. China’s success in advancing fintech adds another level of complexity to this picture. While American policy makers have only begun debating the introduction of a digital dollar, China is leading a national campaign to digitalize its entire economy. China is in the process of developing its own digital currency, the eCNY, which will lead to faster, cheaper, and more secure financial transactions for its citizens. The national effort is complemented by private sector endeavors, with dozens of Chinese tech and financial firms designing new applications to support the government’s eCNY architecture.101 China’s early start in developing digital currencies threatens American dominance in international finance. A digital yuan could offer traders an easy way to reroute transactions and bypass the dollar-based system. China could also see its technologies adopted internationally and dictate the rules of digital financial practices around the world. While there remain great uncertainties about the impact of central bank digital currencies, the U.S. is not confident about its position in the digital race. As Federal Reserve Governor Lael Brainard put it: “If you have other major jurisdictions in the world with a digital currency, and the U.S. doesn’t have one, I just can’t wrap my head around that.”102
Equity Markets and Banking While American stock markets still account for more than half the world’s equity markets, China’s domestic markets have grown over 2,500% since the beginning of the century, from little more than $500 billion in market capitalization in 2003 to $14 trillion by the end of 2021. Nonetheless, Chinese markets remains a distant second to the U.S. stock market value of $53 trillion.103
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101
Yaya Fanusie and Emily Jin, “China Is Making Smart Money,” Lawfare, September 15, 2021, https://www. lawfareblog.com/china-making-smart-money.
102
Ann Saphir, “Fed’s Brainard: Can’t wrap head around not having U.S. central bank digital currency.” Reuters, July 30, 2021, https://www.reuters.com/technology/feds-brainard-cant-wrap-head-around-not-having-us-centralbank-digital-currency-2021-07-31/.
103
“Shenzhen Stock Exchange,” Trading Hours, February 2, 2022, https://www.tradinghours.com/markets/szse; “Shanghai Stock Exchange,” Trading Hours, February 2, 2022, https://www.tradinghours.com/markets/sse; “New York Stock Exchange,” Trading Hours, February 2, 2022, https://www.tradinghours.com/markets/nyse; “NASDAQ Stock Exchange,” Trading Hours, February 2, 2022, https://www.tradinghours.com/markets/nasdaq.
The Great Economic Rivalry: China vs the U.S.
