29 November 2023
China is taking a hard stance against virtual currencies as well as releasing its own domestic alternative. Rumors, and the uncertainty it always produces, abound around China's new Bitcoin counterpart. The so-called "electronic yuan" is really not virtual at all. It borrows a few Bitcoin features and leaves everyone else behind. Unlike what you may be imagining, this is an investment. Finally, it has an unexpected connection to China's PayPal alternatives, WeChat Pay and Alipay. So, to clear the air, let us just talk about China's new Cryptocurrency and all you need to know about it.
The internationalization of the RMB (Chinese currency) and the outward flow of RMB money were two goals of China's 13th Five Year Plan, which ran from 2016 to 2020. Some of China's goals in internationalizing the RMB involve protecting against dollar shortages, avoiding the effects of US monetary policy, and reducing the cost of borrowing money. Twenty trillion yuan (20,000,000,000,000 USD) changed hands internationally between 2009 and 2019. However, the RMB accounts for just 2% of foreign reserves worldwide, whereas the dollar accounts for 60%. To be considered a reserve currency, a country's economy must be sizable, its trade volume must be substantial, as well as the country must be a net creditor. China is just slightly behind the United States in terms of GDP and trade volume, and the country is a net creditor to the tune of 15%, while the USA is a net debtor to the tune of 80%.
Also Read: How To Purchase Bitcoin In China?
What is Digital Yuan?
Nearly eight years after its inception, the "Digital Yuan" finally made its way into the hands of regular citizens in government-sponsored testing in 2017. The central bank issues digital money to the public through six major commercial banks, with most people accessing it via a wallet application. Among the six banks, Postal Savings Bank of China, has created digital yuan chips that can be put in physical wallets so that users may make payments simply by scanning a QR code. During the month of June, the government estimated that there were 20 million digital yuan wallets, with a total transaction volume of 34.5 billion yuan i.e., $5.3 billion.
China has a History of Disliking Cryptocurrency
To some, the news that China is launching a national Cryptocurrency may come as a surprise. This is due to the fact that the People's Republic of China (PRC) has never been a huge supporter of Cryptography. China's attitude toward Crypto has been negative from the outset. Cryptocurrencies are prohibited under Chinese law and are therefore illegal to trade or utilize as currency. Since 2013, the PRC has strictly prohibited the use of Bitcoin, and all exchanges have been thrown into the Great Firewall to be burned to the ground for facilitating the illicit sale of Bitcoin as well as other Cryptocurrencies. In addition, the government has invested a huge amount of time and money into monitoring the countryside in search of illegal mining activities and eradicating them like one would a kudzu plant in Georgia.
The viability of a state-developed digital yuan wallet in the face of existing payment systems supplied by China's internet titans was first questioned. Each Weibo user remarked, "The digital yuan doesn't have many benefits over the present payment instruments, but appears more like 'food coupons' that will come with numerous limitations. This is a reference to the stamps people then used to acquire rationed meals mostly in the late 20th century.
Why is China Launching its Own Crypto?
China's introduction of its very own Cryptocurrency comes as somewhat of a surprise since the country spent the better part of the last decade vehemently opposing the concept of digital currency. In the world of Cryptography, this is comparable to inviting your avocado-hating buddy to lunch and serving handmade avocado toast. China was not really merely eradicating kudzu to make way for fruitful land; the same as any good planter, they had an eye on what they were doing so they could keep tabs on the plant's growth as well as reap the financial benefits of its elimination.
Global Concerns Over the Digital Yuan
The Beijing Winter Olympics in 2019 will be the first big public showing of the digital yuan, and the Chinese government has indeed been hard at work getting ready for it. ATMs at the Games will be able to change foreign currency, such as US dollars, into the digital Chinese currency, the yuan, which may be stored on a wallet card. A kind of coming-out party is planned for the digital yuan during the Olympics, according to Josh Lipsky, director of the Geoeconomics Center at the Atlantic Council. However, going global is no stroll in the park. First, China's stringent regulation of the exchange rate has stymied the spread of the physical yuan and will likely discourage some from switching to the virtual counterpart.
What Does China Like About Cryptocurrency?
The Chinese authorities are interested in Cryptocurrencies because they have the potential to replace bank notes, which is a cumbersome, antiquated method of enabling operations and is prone to forgeries. Since it was first created in China a thousand years ago, the Chinese might understand. Furthermore, the concept of a money which might readily cross borders wherein the inhabitants work and reside, such as the countries along the Belt and Road Initiative, often known as the "New Silk Road," is very alluring. Furthermore, virtual money is considerably simpler to disseminate, manage, as well as govern than traditional currencies
Disclaimer: The author’s thoughts and comments are solely for educational reasons and informative purposes only. They do not represent financial, investment, or other advice.