Before thousands of years ago, coins were money for the people. During this time, China had invented the paper currency. Nowadays, all the countries are using paper currency. The Chinese government is also working on minting the cash digitally. Most people are thinking that we are already using digital currency in the form of Apple Pay and WeChat etc. They should know that these are the ways to move the money electronically. China has turned the money into computer code with the help of legal tender introducing its own currency as the Digital Yuan. Cryptocurrencies are the best examples of digital currency. These currencies are existing outside of the traditional global financial system. These currencies don’t exist in the form of legal tenders just like cash issued by the governments.
China is leading the world because it is successfully working on the development of its national digital currency. It has been working on this project since 2014. PBOC (People’s Bank of China) has been working on it. That’s why we can say that the digital Yuan is the central bank digital currency. They are aiming to replace the cash in circulation with the digital Yuan. As we know that China is the world’s second-largest economy including eCommerce. If it is working on it, other countries should also consider it. Some other countries are also working on the development of their digital currencies.
What is Digital Yuan?
After launching the digital Yuan, China has digitalized the bank coins and notes in circulation. As we know that Chinese market is very fast in cashless payments. The digital Yuan will speed up this process. China has introduced this digital currency in the form of legal tender. Yan Xiao has stated the digital Yuan. According to him, we are decreasing the use of cash. That’s why we have to replace cash with digital currency.
Why China Has Introduced Its Own Digital Currency?
Fan Yifei is the deputy governor of the PBOC in China. Last year, he has given a statement. According to this statement, we need to digitalize the cash and coins. We have to spend enough money on producing and storing these coins and cash. Moreover, we can’t use them easily. Due to their anonymity, people can also use them for illicit purposes. On the other hand, if we will use digital currency, we can easily make payments. We can also improve the transmission of the monetary policy.
He has also claimed that China can create financial stability by introducing the digital Yuan. We can create anonymity in the payment processes. Due to this anonymity, we can easily detect illegal payments. Digital Yuan will also increase competition in the payments space. It is also the best way to decrease systemic risk. Digital Yuan will also level the field for all the payment companies. In the future, China will also introduce a new payment system. This new payment system will increase efficiency.
How Does Digital Currency of China Work?
To know the work of digital Yuan, we have to understand its two aspects. First of all, we have to understand its distribution. After that, we have to understand its spending. We have to distribute it with the help of a two-tier system. It means that PBOC will distribute it to commercial banks. The commercial banks will send this digital money into the hands of the consumers. They can also provide services to people to change their coins and cash with the digital Yuan. For this reason, China has started the trials of digital currency. They have distributed millions of dollars of digital currency to their residents. They have distributed this digital currency in major cities.
After distributing the digital currency, they have allowed the customers to buy products and services. Now, a question is that how will China use it in other parts of the country. China will use this digital currency in the form of QR codes. People can store this money on their mobiles. After storing this money in their mobiles, they can allow the merchants to scan that money. The banks can also provide the same functionality in their mobiles. Smartphone companies will also create digital Yuan wallets.
Will Digital Currency of China Compete with Tech Giants?
According to experts of a dissertation help firm, digital Yuan has developed to compete with AliPay and WeChat Pay. Anyhow, it will not completely replace them. Some experts are saying that the digital currency of China will not directly compete with AliPay and WeChat Pay. Anyhow, it will create chances for other digital platforms to come into this market and compete with them. These digital platforms can be commercial banks. Other payment companies can also think about it. The digital currency of China will also provide lots of help in the financial sector. Its reason is that commercial banks don’t need to compete with the central bank after the introduction of the digital Yuan.
Connection of Digital Yuan and Bitcoin:
Some people are thinking that the digital currency of China is just like Bitcoin. They should know that the digital Yuan is not similar to Bitcoin. Bitcoin is a decentralized digital cryptocurrency. This is not getting support from the central banks. On the other hand, PBOC has developed the digital currency of China. That’s why it is getting support from the central bank. The developers have developed Bitcoin with the help of blockchain technology. Anyhow, we don’t know the technology of the digital currency of China. Most people have also concerns about the anonymity of Bitcoin. That’s why they don’t trust it. They are looking for the most trusted digital currency.
On the other hand, China has introduced the digital Yuan with the controlled anonymity. To use this digital currency, users don’t need to connect their current bank accounts with the Yuan wallets. They can make and receive payments with the loose coupling of the accounts. It means that they can handle their money with the help of their phone numbers. To ensure the anonymity of the transactions, the companies have to submit data to the central banks. As a result, they have to keep track of the data. This is the best way to keep digital money away from criminal offences.
