CBDCs would be the new weapons in the trade war between China and the US.

The trade conflict that since 2018 has generated a battle between China and the United States, the two largest economies in the world, is creating consequences that affect the dynamics of other countries. They even influence the decisions that many of them make in terms of their business relationships.

The weapons that are being used in battle have come to touch payment systems used for commerce. The trend leads one to think that even central bank digital currencies (CBDC) would be part of the artillery used in this trade war. Proof of this is what happens in Rwandaa small country located in East Africa.

Rwanda joins the race for central bank digital currencies (CBDC) and announces the development of tests for the launch of the digital version of the Rwandan franc. They will start at the end of this month, after completing a period of public consultations around the development of digital currency.

This is a process in which several companies will participate, in order to test the effectiveness of the CBDC in cross-border payments and continue the investigations that began in 2021.

According to Soraya Hakuziyaremye, deputy governor of the Central Bank of Rwanda, the CBDC It will be ready in 2026. A launch stipulated in the medium term as part of efforts to “rationalize the financial system and position itself as an important player in the future of the global economy.”

But what is most striking about the advertisement is the motivation that gives rise to the project. As the official explains, one of the objectives is enhance international trade. The idea is to align with the payment mechanisms used by the countries with which they do exchanges.

“It is imperative for the Central Bank to ensure that we are ready for innovations that are also being experimented in other countries with which we have strong commercial ties,” said the deputy governor. An affirmation with which it refers to China.

It happens that the Asian giant has become in recent years in it main business partner from the African country, followed by the United Arab Emirates.

Rwanda’s plans highlight the role that CBDCs can play in the dynamics of international trade in the future, in the context of the trade war.

Relations between China and Rwanda began to strengthen since 2018, reaching such a level that China ended up displacing the United States. As a consequence, there are strong ties that are repeated with other countries on the African continent. To the point that the region’s central banks have come to express their plans to add the Chinese yuan to their reserves.

Such a situation is attributed to the fight to dominate international trade waged by the two world powers, in a geopolitical game that is now moving to cross-border payments, and where now CBDCs are getting involved.

China seeks to integrate the digital yuan and CBDCs into international trade

Taking into account this context of confrontation, China seems to aim for – in the medium or long term – commercial exchange with its partners to end up being carried out with digital currencies, leaving aside the dollar.

It is this premise that drives Rwanda to overcome any obstacle that may arise in commercial exchanges with China, the nation that leads and promotes the process of global dedollarization and which has the most advanced CBDC project in the world.

As CriptoNoticias has reported, China’s international trade is already is practically dominated by its national currency. The goal is for the digital yuan to also be part of that cross-border exchange.

In fact, the CBDC was already used last year as a means of payment in an international transaction. A test that the United Arab Emirates authorities also carried out with the digital dirham.

This understands Rwanda’s motivation for launching its CBDC in an attempt to facilitate transactions with China, which is currently are settled in yuan.

The situation is repeated with payments between China and countries such as Russia, the United Arab Emirates, Brazil and many others. Other African nations enter the list such as Nigeria and South Africa. They all stand out for having advanced with their central bank digital currencies.

It should be noted that most of these countries – among which China and the United Arab Emirates stand out – are part of the BRICS bloc, a group of 10 nations that already carry out transactions using their local currencies to open the way to dedollarization of their economies.

The BRICS plan is to develop its own cross-border payment system based on their CBDCs. For this reason, its members strive to keep their CBDC projects running.

In addition to China, Brazil, and the United Arab Emirates are those with the most advanced projects. Rwanda is not in this bloc, but having China and the United Arab Emirates as its main trading partners, increases the pressure for joining the CBDC race.

The deputy governor of the Rwandan Central Bank fears that the country will be left behind and at a disadvantage if it does not pair its cross-border payments system with partners who plan to trade its digital currencies. Hakuziyaremye’s fears are possibly present among other partners of the Asian country.

An example is China, whose CBDC is now in the pilot phase. Let us imagine cases where trading partners adopt a national digital currency and Rwanda cannot trade because we do not have the technology. This will negatively affect the private sector of both countries.

Soraya Hakuziyaremye, Deputy Governor of the Central Bank of Rwanda.

The Rwandan official presents more reasons to substantiate the benefits of the CBDC project, even as she acknowledges that there are concerns about low adoption, lack of privacy and threat to financial stability. However, their arguments show that the priority for the country is to maintain the commercial partnership with China.

It is also to be expected that, in a scenario in which the BRICS negotiate among themselves with cryptocurrencies and other countries launch their digital currencies for trade (as Rwanda plans to do), the United States lose the battle against China.