Recently, one of the most common issues among financial analysts has been the establishment of China’s first digital currency. People have compared it to cryptocurrencies and discussed the benefits and drawbacks of each. Some analysts say China’s new currency has the potential to overtake cryptocurrency and be broadly adopted around the world. This current payment approach is close to bitcoin in that it uses the blockchain strategy, but it still has a range of advantages, which is why the campaign deserved so much publicity. Others, on the other hand, believe that China’s digital currency has no hope of being a success and that it will not even be able to leave China’s borders, since it is only available via Chinese payment systems. Nobody knows for sure at the moment, but to assess the situation critically, let’s first look at what these latest currencies are all for.
Chinese Digital Currencies
The Chinese government recently launched a new payment mechanism called Digital Currency Electronic Payment (DCEP), which is a digital equivalent of the yuan, China’s national currency. People ask if it has a chance to become the world’s dominant currency, but it’s more plausible when you know that even Chandler Guo, a leader in digital currencies, agrees that DCEP has the ability to become the world’s dominant currency.
The biggest explanation for this forecast is that nearly 40 million Chinese citizens live outside of the region, and this digital currency helps them to maintain a bond with China, which is a key factor in making DCEP a foreign currency. However, many people are concerned that China’s digital currency is not fully trustworthy, and that it may also be used by the government to spy on citizens.
Status of Digital Currencies
China is thought to be reluctant to allow a crypto exchange in the region. Since digitalization may pose a threat to the national fiat currency, it’s very likely that a digital payment firm will be established to distribute and possibly manage the digital currency’s supply. Despite the fact that it is impossible to happen right away, outlets such as PayPal, Payoneer, and others are willing to enter and help promote the new currency. Furthermore, if the money is not based on a single website, it would serve as a great motivator for users of various payment systems.
Using a variety of payment methods can help DCEP succeed because most consumers find using a variety of payment options to be more convenient. In banking, having a wide range of options is critical. Let’s look at conventional markets. For example, top-rated forex brokers who could only accept card payments and wire transfers became far less likely to attract new customers as more alternatives become available. As a result, the increasing number of Payoneer forex brokers, as well as PayPal brokers and others, quickly met the demand. So, in the case of China’s digital currency, if there is only one website that offers the central bank digital currency (CBDC), demand would be strong at first but will wane over time. China, on the other hand, wants it to be a long-term project.
Challenges for the digital currency
The central bank is one of the most vocal critics of China’s digital currency. It’s not surprising that the creation of digital money poses a direct challenge to Chinese banks because the ability to legitimately transact for digital currencies means that citizens will no longer need the services of a bank and they will be able to pay each other with their mobile. About the fact that the currency is scheduled to be launched in 2020, the People’s Bank of China is working hard to delay the introduction, which is why no specific date has been set.
However, expanding the use of internet currencies could be beneficial to the country since the national currency, the yuan, may have more opportunities to trade with the US dollar. The explanation is simple: once other countries want to use the Chinese currency, which is extremely plausible in the case of DCEP, it would have a significant impact on the United States’ monetary policies. However, it is widely believed that digital currencies are the way of the future, and China’s digital currency seems to be a hit, as the country began testing it earlier this month on a variety of websites, allowing users to download e-wallets to their bank cards, make purchases, and pass money.
The use of Yuan
Transacting with digital currencies is essentially the same as using Alipay or WeChat to make an online purchase. Just a bank account with funds is needed, and these electronic payment tools will be able to subtract funds paid by apps. The benefit is obvious: consumers would be able to deposit directly into their e-wallets, eliminating the need for physical banknotes in an account. As of now, the digital yuan appears to be a hit, and its use has progressed after a small trial in which 50 000 Chinese people were selected at random to obtain a total of 10 million yuan in digital currency through a lottery. People saw the advantages of digital currencies during this event and showed a willingness to turn from fiat to it.
What this means is that the world will see further changes in the near future, with the advancement of Digital Currency Electronic Payment at the top of the list. However, the digital yuan’s existence remains unclear since Chinese banks are attempting to stop replacing cash with digital yuan by giving it a business option.