China and the digital era
We already live in a digital era is not a secret to anybody. From internet technologies to NFTs and Cryptocurrencies, digital technologies are progressing nonstop. Some people think that cryptocurrency will replace fiat money pretty soon, and NFTs will substitute real art. Every country should move toward progress and digitalization in a world like this. But not every country welcomes the idea of decentralized cryptocurrencies. One of these countries is China. You all know that crypto and its mining are banned in China. Because of that, Bitcoin and other coins faced “The big dump,” from which they only recovered recently. But in 2021 internet was flooded with news that China is creating its digital currency: the Digital yuan. So, does that means that china changed its mind about crypto? Of course not! The thing is, China still doesn’t like cryptocurrency because it is decentralized and very had to control. But the Chinese government wants the technology and convenience that crypto can bring. So, they just decided to create their own coin. The one that can be controlled but still will have the qualities of cryptocurrencies.
Is it good for the economy?
In theory, the digital yuan will contribute to the Chinese economy. First of all, transactions with digital yuan don’t need financial intermediaries between the seller and its customer. Digital money will go directly from one e-wallet to another, bypassing transit routes through the accounts of commercial banks. Moreover, the transfer of money will occur even offline, without access to the Internet. You will also not need a bank account, which (according to the estimates of CGTN) about 20% of China’s population does not have. China will still need banks because data of e-wallets will be stored on their servers. But the Chinese government claims that they will not take the commission, which is excellent news for everyone who will use it. Chinese officials claim that their main goal is to stimulate the development of retail trade and reduce associated costs. I personally view the digital yuan as a promising instrument that significantly simplifies payments and even determines the international monetary system. Just imagine how it will simplify cross-border bank transactions.
A potential threat to the dollar.
The Digital yuan can also have a hidden purpose that sounds logical considering that China wants to shape the International monetary system. Some experts think that the global goal of the yuan can be changing the scheme of international settlements and positioning the yuan as an effective competitor to the dollar. It may sound cool, but it is really hard to fight against the dollar in reality. Even if the digital yuan will be more convenient, some countries can’t just stop using the dollar because of political and economic reasons. But still, if China will be the first country to use digital currency in international trade, it will be a significant advantage for the digital yuan.
Get rid of the SWIFT.
Probably the main reason why the Chinese government wants to adopt digital yuan is to protect itself from sanctions and pressure that the USA can provide. The thing is, the USA lately very often uses the SWIFT system as the instrument of politics. Experts say that the United States frequently uses threats to disconnect a particular country from SWIFT. For example, Iran was disconnected from the SWIFT system in 2012. By creating a digital currency that doesn’t need the SWIFT system to make international transfers, China will protect its economy if the USA tries to disconnect it from the SWIFT or CHIP system.
Conclusion.
As we can see, China doesn’t want its people to use cryptocurrency, but only if the government can control it. Basically, China wants to create its own crypto that will be as convenient as bitcoin. So, the bad news is that the crypto probably will be based in China forever. But as for the people who don’t really care about bitcoin, the digital yuan can bring a lot of advantages. In my opinion, the main problem with the digital yuan is that China still can’t use it in international trade. Because no one still didn’t figure out how to control international crypto transactions to avoid money laundering, corruption and, tax fraud. So I think, at this point, the digital yuan will be used only in China, so it will not influence the world that much.
