The race started in 2014 but 2020 brought it to global attention while setting the pace for other major national and international milestones. China’s sovereign digital yuan has seen a tremendous increase in development this year. But in a statement issued by Chen Yulu, Deputy Governor of Chinese Central Bank, he said that China should speed up their rollout of the digital yuan. While China is seamlessly about to be the first country to be launching a digital currency backed by a central bank (CBDC), the country seems to want just more than that.
Is Global Dominance Of Digital Yuan Possible?
The communist-led country is staging a global currency war with hopes that the digital yuan will overthrow a dollar-dominated world economy and secure the Chinese currency dominance globally. The plan is that the digital currency will increase retail transactions within the country and reduce “dollarisation,” replacing situations where the dollar is used in parallel instead of the local currency.
The Chinese renminbi occupies the fifth position in the world’s reserve currency platform for global payments, with a percentage influence of 1.91 while the dollar takes the global lead with 38.96% as of August 2020, according to Swift report, a global provider of secure financial messaging services. But the dollar and renminbi fell to second positions and sixth positions with 36.64% and 1.66% respectively in October. The euro took the lead with 37.82%
Screenshot of RMB as a global payments currency. Source: Swift.
Launch Of The Digital Yuan
In August, China conducted a soft launch of their digital yuan which lasted for a very short period of time. The launch was cut off following massive media reports and global attention. But the digital yuan has been in the Chinese research project since 2014. There has also been increased launch and testing of the digital currency in Chinese major cities, commercial banks, and big tech companies.
50,000 Random People Receive $1.5 Million
According to media reports on October 12th, the Chinese Central Bank issued $1.5 million worth of digital yuan to 50,000 randomly chosen people by lottery. Each participant received a gift of digital cash (red envelopes) of 200 yuan ($29.75). This trial was one of the biggest trials the digital currency had seen since the project commenced. Analysts had also commended the test saying that the digital yuan had taken a step beyond theoretical internal testing to real-world trials, said Wang Shibin, co-founder of cryptocurrency platform HKbitEX.
Ever since then, there have been targeted efforts by the country, the second-largest economy in the world, to give its currency a global significance; one that can match or upturn the U.S. dollar. The strategy adopted by the communist-led government to give the digital yuan a global significance is that of “dual circulation,”
80% Of All Transactions In China Are Digital
Mobile transactions in China have been on a high rise. Last year alone, about 80% of the transactions were done through mobile transfer which amounted to 347 trillion yuan ($49 trillion). This vast use of mobile transfer through fintech companies in China set a fertile ground for a smooth transition or side by side co-existence of the digital and the fiat currency as the country has a robust fintech market.
Smooth Transition To A Digital Currency
Unlike other economies like Japan which is one of the countries with a large population of people who have strong attachments to the fiat currency. The country speculates hitches in a smooth transition from fiat currency to a digital one. In Germany, the slogan Bargeld ist Konig (Cash is king) still applies actively in a country that is the fourth-largest economy in the world and Europe’s strongest economy.
The main focus of the PBOC in testing the DCEP is on retail transactions. The central bank maintained that they were not focusing the trial on large transactions undermining the earlier claim that the digital currency had been used to carry out a bulky real estate transaction. The concentration on retail transactions rather than larger ones and local transactions will help to expand the robustness and in scaling its operations and speed up the launch of the currency earlier than anticipated.
2 Billion Yuan Worth Of Digital Currency Transactions
As of November 2nd, over 4 million transactions had been carried out in the digital currency, an equivalence of 2 billion yuan ($299 million) according to a Bloomberg report. In the Yi Gang, the PBOC’s governor said that a pilot program testing the rollout of the digital currency in four cities has been smooth.
Much of the trials in rolling out the digital currency has been based on the “red packet” gift. In early December, an additional trial was conducted and 20 million yuan (3 million) was given out to residents of the Suzhou city close to Shanghai. The retail outlet JD.com announced that it had been the first online platform to accept the digital currency.
Latest Features In the Trial of the Digital Currency
In the gradual rollout and trial of the digital currency, many features have been added as an expansion of the robustness of the currency. The “tap to transfer” feature enables people to make transfers by just tapping one’s device on another. This is a replication of the hand-to-hand transfer of fiat currency demonstrating how fast and seamless the use of the digital currency is. Facial recognition, bar code reading are other payment methods that have been tested with a vast number of people.
Huawei Mate 40 Series Includes Default Digital Yuan App
To help fast track its spread to a global landmark, the Huawei Mate 40 series has the digital yuan app already installed. The app provides a digital yuan hardware wallet while providing hardware-level security.
China has maintained that its digital currency will operate on an “anonymity control” pattern. This means that individuals will remain anonymous to each other while using the CCB backed currency but details of illegal transactions will be tracked. This method will help crackdown on illegal transactions or tax aversions as contained in my previous report.
Screenshot of the CCB digital yuan. Source: China Briefing
Private businesses have indicated an interest in participating in testing the digital even though previous trials conducted did not include them. Didi Chuxing, a transportation company connecting users of its smartphone apps with vehicles and taxis for hire, Meituan Dianping, a food delivery store, and Bilibili Inc. an online entertainment service provider are some of the businesses that are keen to partake in the trial.
Technical Pilot Testing By HKMA
Engaging the trial in a cross-border transaction is one of the latest milestones of the digital currency. China’s Central Bank and the Hong Kong Monetary Authority (HKMA) are making this plan as a “technical pilot testing” plan according to a report.
China has kept the official rollout of the digital occurrence a secret but has said that the currency will be used on a global level in February 2022 when it will host the Winter Olympics. It is also speculated that the currency will be launched well before then.
More Than 100 Patent Applications
By May 2020, China had filed for more than 120 patent applications for its digital currency compared to any other country. Currently, there has been an uptick in the number of countries joining the race for a digital currency including Canada, India, the U.K., the U.S. All the countries while being conservative about speeding up the process of launching a digital currency acknowledge that China will enjoy the benefits of a first-mover even though there could be other challenges to watch out for.