Implication of Digital Yuan on Crypto and Dollar
China has started to pilot its digital currency in four major cities including Shenzhen, Suzhou, Chengdu and Xiong’an. Three of the largest American brands, Subway, Starbucks, and McDonald also were reportedly be among 19 companies to join the digital currency trial. The launch of the new Chinese central bank digital currency (CBDC) has generate a lot of attention from the public and media.
China’s decision to launch and fasten its progress on its CBDC was reportedly spurred by the announcement from Facebook’s plan to launch Libra. China’s own CBDC also called “DCEP” (Digital Currency Electronic Payment), which is backed 1:1 by the country’s national currency and it will be the first major CBDC to see its adoption on a national level.
An Alternative Against the Dollar Settlement System?
In an article published by Zou Pingzuo, a researcher at the People’s Bank of China’s Research Bureau. Pingzuo highlighted the original vision of its CBDC and how it is different from the U.S. dollar based monetary system.
Pingzuo said “An innovative digital currency combining the idea of “blockchain + human value” makes the currency a tool to discover, manage, create and implement value, integrate the measure of value function of a currency with the currency, and enhance the value creation function of a currency, thus fundamentally eliminating inflation and deflation.”
The digital yuan also could be used as a tool against the US sanction as other countries could buy crude oil from Iran with Chinese digital currency. Many multinational corporations are likely to adopt digital yuan if they choose to enter the Chinese market, which will inevitably reduce the dollar’s influence in the global financial market.
Digital Yuan is Different from Cryptocurrency
The Chinese CBDC was meant to be a centralized currency when it was created, one of the main purposes of the Digital Yuan was to track record of digital cash to eliminate money laundering and tax evasion.
The new Chinese digital currency is reportedly allow to be exchanged without an internet connection. China already has a substantial amount of its population using digital currency to make transaction on a daily basis. According to Tencent, its payment subsidiary WeChat Pay has processed around one billion payment transactions per day and had around 800 million actives users and 50 million active merchants.
Can Digital Yuan Compete with Cryptocurrency?
Digital Yuan is hardly a comparison with other cryptocurrencies as they are created for different purpose. They are likely to be co-exist for different purpose. However, Digital Yuan is likely to gain huge adoption due to the country’s large population that are already accustomed to digital currency. It is more likely that Digital Yuan would posed a threat to the US monetary system as Yuan could replace Dollar serving the same function.
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