China’s CBDC plans have long been in the pipeline. In 2016 China’s central bank laid out a blueprint for the country’s first Central Bank Digital Currency. In addition, the government urged banks and financial institutions to form alliances with other industries to accelerate the development of an industry-wide digital currency platform. This directive was intended to increase efficiency in the financial industry and make it more competitive against private sector initiatives. People who are interested need to know the impact of the digital Yuan on the Chinese market.
Since then, several institutions have been involved in creating a standardized CBDC platform. As a result, the project is well underway, with over 120 projects completed by 2022. The country’s largest banks are the China Development Bank and the Industrial and Commercial Bank of China.
The CBDC’s long-term vision encompasses its use as a reserve currency and national electronic payment system — which would significantly improve China’s international trade capabilities. As the world’s second-largest economy by nominal GDP, China is looking to increase its influence on the international stage further. Coupled with its large domestic economy, an influx of FX reserves and a national payment instrument would give China the financial power to compete with economic superpowers like the United States and Japan.
China leading the competitive space:
China’s highly competitive FinTech industry has been at the forefront of experimentation in blockchain technology and financial applications. It has inspired several blockchain initiatives in its major cities, including; Shenzhen, Hangzhou, and Beijing. The country also boasts some of the most progressive blockchain startups, like Bitmain, Bihang, and Wanchain.
It is all in addition to China’s central bank’s successful implementation of blockchain technology. For example, in August 2016, The PBOC (People’s Bank of China) announced the successful completion and launch of a project that utilized blockchain technology to facilitate interbank settlements.
The use of digital yuan in china:
The intention is to make daily payments through digital payment and the use of electronic money and also to allow a reduction in paper circulation across the country. The move will also help pave the way for an entire CBDC blockchain system to be introduced in China by 2020.
The evolution towards a CBDC:
In October 2016, the PBOC announced that it would begin developing a national CBDC platform that would include limited-circulation digital currency units and a prepaid-payment system. Since then, the PBOC has been conducting extensive research and trials to lay the groundwork for China’s own national digital currency. In addition, many Chinese citizens have discussed the benefits of a national digital currency through social media, which will fast-track international trade and payment transactions.
What are the pros of the digital yuan?
Innovative FinTech companies can offer customers new products such as loans, payments, and credit through digital yuan. It has inspired several FinTech companies to develop applications that ordinary people in China can use. Such applications include payment service providers (PSPs) and online payment services that allow merchants and customers in China to use digital yuan for everyday transactions.
Digital yuan payments are also free of charge to the consumer. It means even if the merchant uses a PSP, the consumer is not charged any fees for using a digital yuan transaction for payment. Furthermore, in comparison to credit and debit cards, digital yuan transactions are more secure as payments are authorized by the customer.
Digital yuan is essential in modern China as merchants and consumers widely use it. In addition, many banks have integrated their systems into China’s central bank network, enabling them to offer innovative financial services to customers. As a result, digital currency exchanges in China process millions of yuan every day as customers move them between accounts or use them to pay for goods and services online.
In addition, digital currency exchanges have formed partnerships and corporate alliances with Chinese banks. As a result, it has made it easier for the customer to pay in digital currency at any bank or transfer money between accounts.
What is the downside of the digital yuan?
The PBOC has yet to provide a solid explanation of how they will ensure the security of digital currency wallets. It is widely expected that the PBOC will use a centralized system to monitor and control digital transactions. However, this comes with risks as it may be vulnerable to cyber-attack or fail altogether, which could see the digital yuan lose its value or become worthless.
The Chinese government has always been wary of digital currencies and their impact on the economy and its national currency. As a result, the government has already imposed several controls on using and adopting digital currencies in China. The controls are in place to ensure that digital currencies do not gain popularity as they may challenge the country’s national currency and financial system.