China has been making calculated moves to set themselves atop in the global technology and economy order and the digital Yuan is their latest effort to achieve that goal.
The digital Yuan has been the hub of financial discussion this year and even more since the 29th of August following the soft launch of the much anticipated digital currency. This move by China has thus surged the fight over tech standards, data control, and its rage among the world powers.
First Electronic Currency To Be State-Owned
The Digital Currency Electronic Payment (DCEP) will become the first-ever electronic currency to be state-owned and issued by the Central Bank. The Peoples’ Bank of China (PBoC), which is controlled by the Chinese government, will have total control of the currency.
It will become one of the most revolutionary financial projects in the world. The Chinese fiat currency RMB will be replaced by digital ones and expected to be pegged 1:1 to the fiat currency according to the Forbes report. Digital Yuan is at the moment undergoing trials in four cities including Cheng Du, Shen Zhen, Sou Hou, and Xiong ‘an.
The Difference Between Digital Yuan And Other Cryptocurrencies
The digital Yuan differs from the currently existing cryptocurrencies in many ways in that bitcoin works outside of a central authority’s control. It is also totally different from the blockchain. The digital wallet used to access funds would have to be authorized by the People’s Bank of China and differs from the cryptocurrency open-source method. The cryptocurrency gives developers the power to openly broadcast their code for public audits and scrutiny. It also allows for a community of builders where anybody can build on and contribute to the global consensus of the cryptocurrency network.
By replacing the RMB, the digital Yuan will work as a mobile-app-based-digital-wallet. It uses Near Field Communication (NFC) technology. It will also be able to function as an offline app and would extend to remote areas that are underbanked. It can also be operated without direct connection to a Chinese bank account
China On The Verge Of Becoming Cashless Society
China was already on the verge of becoming a totally cashless payment society. It was reported by the Wall Street Journal that about 621 million people already use different forms of electronic payment such as Alipay and WeChat Pay. If China becomes successful in the implementation, there will be a snowballing effect across the global financial and technological system as China may be dumping the dollar.
Major Currency For International Trade In China
The dollar is the major currency for global and international trade. Countries that trade with China do so in dollars. According to Observatory of Economic Complexity (OEC) report, the top trading partners of China in terms of export sales are the United States ($499B), Hong Kong ($282B), Japan ($155B), South Korea ($107B), and Germany ($96.9B), and imports mostly from South Korea ($160B), Japan ($139B), United States ($119B), Germany ($109B), and Chinese Taipei ($97.4B).
In 2018, China spent $2.59 trillion in export trade. America is also able to impose and implement sanctions and export controls due to the dollar’s trading power. Successful implementation of the digital Yuan will challenge the American financial hegemony and down-tone Chinese dependency on dollars.
Will Digital Yuan Increase State Surveillance?
Experts are concerned that the digital Yuan will increase state surveillance although it was reported that China promised anonymity of “ordinary transactions.” According to the Wall Street Journal (WSJ) report, marketers will not have access to people’s spending activities. They added that information will remain visible to the Central Bank.
Digital Yuan can be used without being affiliated with a bank account. Nonetheless, the information needed to be supplied to have access to it remains unknown. Such big data controls enable states and institutions to visualize and predict trends, behavioral characteristics and would help eliminate monetary frauds like laundering, terrorism financing, and tax aversion, a feat which would remain impossible with the fiat currency.
Recording Data And New Opportunities
In consideration of China’s policy on recording data, it is most likely that the digital Yuan will give China the opportunity to exercise a high level of control of data of individuals and countries that will be trading in the digital currency once it is commissioned. China has also promised “greater anonymity” on financial surveillance. The anonymity will not be complete which is why it is referred to as “controllable anonymity.” There are also speculations that different interest rates on wallets for individuals could be imposed.
In recent years, China has stepped up its trade relationships with developing countries. Since 2013, China has adopted the One Belt One Road policy which is intended to foster trade routes with strategic control between China and countries in Asia, the Middle East, Europe, and Africa.
China’s struggle remains to promote the global value of the RMB through the digital Yuan and increase its position on the global economic map. Experts say that China’s independence from the dollar will take a while before being actualized. However, its final launch will have a great impact on the dollar, the world economy and may also be a catalyst to many other state-backed digital currency projects.
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