China: Digital cryptocurrency payments, minus the crypto.
Imagining a world where you no longer have the sounds of coins jingling in your pocket? China may just be answering your prayers. Back in April 2020, the Chinese government made moves to back The People’s Bank of China’s plans to issue its own currency, the digital Yuan, not to be confused for a cryptocurrency since it will be anything but that.
To give a little background, in the Chinese marketplace, Tencent and Alibaba are the frontrunners in cashless payments. They have enabled payments through their own apps and social media between friends, retailers, and vendors. It is real “tangible” money sent back and forth from person to person. Money flows and money goes.
What is the difference between the digital Yuan and a Cryptocurrency?
This is the first digital currency (ever) to be backed by a national bank and government- at the same time. In simple terms, a technology like this separates the Chinese government from the rest of the world tagging them as the pioneer in trackable digital currency and could open the gateway to the first fully digital economy.
Currently, the digital Yuan is being tested in 4 cities with plans to expand into hubs such as Hong Kong and Beijing. Rumor has it that plans to launch the currency nationwide will most likely occur at the 2022 Winter Olympics.
The full launch is pending as the service will only be able to work between those who have a digital wallet for their “cash” through the PBOC. You make your phone your own personal ATM by downloading the digital wallet and extracting money directly from your bank account to the app.
So even though the digital Yuan tech package could be confused as the perfect lovechild of Paypal and Bitcoin, a large dissimilarity from Bitcoin is the anonymity and the upper hand on Paypal is the lack of transactional fees.
To observe a bit further, Bitcoin survives on the principal of blockchain technologies where a middleman and a bank are obsolete, but the currency is decentralized and has no real financial backing. With the digital Yuan, though you can upload money to your account as you would with Paypal, since it is bank-sanctioned money, there is even more supervision of an individual’s transactions.
While it’s no secret that privacy has been a longstanding issue in China, the ultimate goal is reportedly to track payments to ensure a decrease in financial crime in China, but on a larger scale to globalize the Yuan and overtake the strength of the good ol’ dollar bill.
How does this impact China vs. Other countries?
For the immediate future, the impact will be fairly medium. Until trials with the test cities and businesses are complete and any bugs are ironed out, the idea of the digital Yuan being used outside China is on hold. However, China has been in talks with several countries, including Russia and the EU, in regard to currency swaps, anti-SWIFT banking methods, and to find ways to adopt the digital currency technology for their own economies.
The currency with the most to lose if the digital Yuan takes off?
The U.S. Dollar. Due to its golden status (pun intended), the U.S. dollar has long been the world’s reserve currency. This means that over half of the foreign bank reserves are denominated in U.S. Dollars and nearly half of the world’s debt is calculated in dollars too.
I’ll say it, because we are all thinking it- this put the Chinese government leagues ahead of the US. Seems pretty brash, but the Chinese digital money printers are already heated up. However, unless the U.S. jumps on the bandwagon to create their own government and bank backed digital dollar, this could mean the decline of the great George Washington.