Chinese Digital yuan vs Bitcoin
China is the first major economy to create its own digital currency.
A cyber yuan will allow Beijing the ability to monitor spending in real time, as well as liquidity that is not tied to the dollar-dominated global financial system.
When money meant coins a thousand years ago, China introduced paper currency. In a reimagining of money that could rock a cornerstone of American influence, the Chinese government is now minting cash digitally.
Credit cards and payment apps such as Apple Pay in the United States and WeChat in China can make it seem that money is already virtual. But those are all automated money transfer methods. China is translating its legal tender into digital code.
Cryptocurrencies like bitcoin have hinted at a possible decentralized future for currency, despite the fact that they operate outside of the conventional global banking structure and are not legal tender like government-issued cash.
Credit cards and payment apps such as Apple Pay in the United States and WeChat in China can make it seem that money is already virtual. But those are all automated money transfer methods. China is translating its legal tender into digital code.
Cryptocurrencies like bitcoin have hinted at a possible decentralized future for currency, despite the fact that they operate outside of the conventional global banking structure and are not legal tender like government-issued cash.
The Chinese central bank, which will release the new electronic money, is in charge of the country’s version of a digital currency. It is supposed to provide China’s government with a slew of new resources for monitoring the country’s economy and population. By default, the digital yuan would eliminate one of bitcoin’s most appealing features: user privacy.
Beijing is now positioning the digital yuan for foreign use and developing it to be untethered from the global financial system, which has ruled since World War II and is dominated by the US dollar. China is promoting digitization in a variety of ways, including currency, in order to achieve more consolidated power while gaining a head start on future technology that it sees as open to grabs.
How a Digital Yuan might jeopardize Bitcoin's most important markets
In China there could be problems for the raw and divisive rally of Bitcoin, as the nation continues a global campaign to build a distributed version of its currency.
This is because, according to Phillip Gillespie, the head of the cryptocurrency and liquidity provider B2C2 Japan (mainly operating with retail investors), the imminent rollout of virtual yuan could boost cryptocurrency markets if China’s officials tighten the regulations at the same time.
In an interview, Gillespie, who formerly worked in currency markets with Goldman Sachs Group Inc., said, “Once a digital yuan is launched, that’s going to be one of the greatest threats in crypto.” He warned that if the new regulations result in trading sites for digital coins eating up liquidity, “panic selling” could occur.
GUANGZHOU, CHINA (Reuters) – The rising price of bitcoin could be driving interest in China’s digital yuan scheme, according to the country’s central bank, considering the fact that bitcoin is effectively prohibited in the world’s second-largest economy.
China’s digital yuan is an example of a central bank digital currency (CBDC) designed to replace some of the country’s cash.
It is used as a way to advance cashless payments through the People’s Bank of China (PBOC). It’s essentially a digital kind of fiat money. Since 2014, the central bank has been working on a digital currency.
Wang Xin, director of the PBOC’s research bureau, told reporters that business interest in the digital yuan is “very high.”
According to a CNBC translation of Wang’s Mandarin remarks, “on the one hand, this is due to an increasing number of central banks around the world engaging in the growth of domestic digital currencies.”
Several central banks around the world are considering issuing their own digital currency, including Japan, the United Kingdom, Sweden, and Switzerland. China is, without a doubt, the most advanced nation.
In recent years, the Chinese government has taken a dim view of cryptocurrencies. In September 2017, China declared initial coin offerings (ICO) illegal. Following the ICO crackdown, trading sites that exchanged cryptocurrencies or offered facilitation services were ordered to shut down as well. For investors in China, this rendered buying bitcoin almost impossible.
But that wasn’t just a one-size-fits-all prohibition. It was a warm-up for what was about to happen.
We ought to look at the larger picture of China’s economy and financial market to understand why the Chinese government is so hostile to cryptocurrencies.
As central banks around the world struggle to regulate bitcoin in the same way they control fiat currencies, China is working to become the first country to adopt its own digital currency, dubbed the Digital Currency Electronic Payment (DCEP) initiative.
The People’s Bank of China (PBOC) is guaranteeing the success of its own upcoming digital yan through prohibiting other institutions from issuing their own cryptocurrencies through the ICO ban and banning bitcoin exchange. Moreover, unlike cryptocurrencies like bitcoin, trading with the digital yuan would not protect the illusion of anonymity, and its value will be as constant as the actual currencies.
CHINA IS ON THE WAY TO Being A CASHLESS Nation.
In its attempts to internationalize the yuan and reduce its reliance on the global dollar payment system, China aims to be the first country to issue a digital currency.
According to Reuters, the freedom to issue and manage a digital currency would become a “new battleground” of rivalry between governments, according to an article published in China Finance, a journal owned by the PBOC.
The PBOC describes the yuan as both tangible and digital currency as part of the programme. To crack the dollar’s hegemony, a new payment system network is being developed.
Tests of the digital yuan are now ongoing in this respect. Several trials were held in four cities: Suzhou, Shenzhen, Chengdu, and Xionggan, as well as at the Beijing venue for the 2022 Winter Olympic Games.
While the PBOC backs the digital yuan, there are many aspects in which it cannot legally compete with bitcoin. It is not decentralized (and therefore similar to the paper version of yuan) and would not depend on a transparent, permanent blockchain database as Blockchain does.
The PBOC is unable to run their digital currency on blockchain for two key reasons: To begin with, analysts are dubious that any network could accommodate the sheer volume of regular transactions created by China’s 1.4 billion people. Second, the decentralization and anonymity inherent in blockchain technologies are two principles that run counter to China’s stated aim of “striking it rich.”
DIGITAL YUAN VS. BITCOIN
The PBOC could use the digital yuan to tighten bank lending controls and direct financing as it sees fit, but a central-bank-controlled digital yuan would never be able to deal with Bitcoin’s value propositions.
The DCEP’s economic influence is still unknown, and only time can tell whether centralized digital currencies will support or impede China’s economy. What is obvious is that this is a new phase in the long-running conflict between central bank-controlled fiat currencies and bitcoin’s peer-to-peer, pseudonymous offering.
In its digital yuan trials, China has given away millions. This is how it does. Is Bitcoin the digital currency of the future?
As long as you don’t start equating the future of money with Bitcoin, the notion that most of today’s cash use will move to digital tokens is neither faddish nor outlandish.
Governments will borrow some of the distributed ledger infrastructure that underpins private cryptocurrency, but they will want to maintain power over the currency that circulates throughout their economies. Some will be effective.
Don’t be shocked if the smartphone’s e-wallet resembles a multicurrency account by the end of the decade. You can, however, be a client of central banks rather than commercial banks. In reality, there were quite a few of them.
Doesn’t that seem a little far-fetched? Apart from the Bahamian Sand Dollar, there is currently no official online currency in use. Nonetheless, autonomous yuan pilots are picking up steam, with Beijing hoping to launch the currency in time for the 2022 Winter Olympics. Sweden may be the next big country to do so. The Bank of Japan has no imminent plans, but it does accept the prospect of a future “surge in public demand” for official digital currency.
According to a September 2020 paper by the Federal Reserve Bank of Atlanta, digital payment vehicles that do not rely on conventional bank accounts will increase financial participation among cash users even in the United States, which is only toying with the idea.
Smaller economies would need their tokens to be appealing in domestic contexts to maintain regulation of monetary policy. The target for larger countries may be different: China and the United States may choose to have add-ons to make the e-CNY or FedCoin the alternative method of resolving international claims for foreigners.
Both digital currencies issued by central banks must be interoperable in order for the future to be effective. In other words, they’ll communicate with each other — as well as private-sector substitutes like Bitcoin, according to Sky Guo, the CEO of Cypherium. The blockchain startup from the United States is a member of the Federal Reserve’s Faster Payments Council and the Digital Currency Working Group.
So far, what do we know about the Digital Yuan?
The People’s Bank of China released a statement on the progress of the digital yuan in January 2020.
Design, functionality creation, and integration testing are almost complete, according to the statement. The bank is developing a two-tiered scheme aimed at controllable anonymity – an oxymoron given the strength of conventional cryptocurrencies including bitcoin.
In 2014, China founded the Research Institute of Digital Currency. The goal of this organization was to hasten the development and launch of the digital yuan, particularly after Facebook announced the upcoming launch of its own digital currency.
Can the Global Power Balance Be Affected by the Digital Yuan?
Although some of the arguments made regarding the latest blockchain seem to be exaggerated, credible organizations from around the world believe the new Chinese invention has the potential to disrupt the global economic power balance.
Cryptocurrencies, according to Deutsche Bank analysis, would obliterate the plastic bank card. Cash, through dramatic changes, will continue to exist for decades.
However, one of the report’s most daring assertions concerns the recent Chinese cryptocurrency. The creation of digital currencies in countries like China and India, according to Deutsche Bank, could change the epicenter of global economic influence. The digital yuan is a currency that is based on the Chinese yuan.
The digital yuan is currently represented as being distinct from the world’s primary cryptocurrency. The digital yuan isn’t such a cryptocurrency in certain ways. It is essentially the national currency in digital form, with very little space for speculative price increases or decreases.
The Chinese central bank will continue to regulate the digital yuan, indicating that it will not be decentralized. The new currency would be a supplement to the paper-based yuan, rather than a competitor or a replacement.
Is This the End of Bitcoin?
Some have called the digital yuan a “bitcoin killer,” while others have been even more negative.
According to Bloomberg writer Andy Mukherjee, the digital yuan is much larger than bitcoin. The world’s second largest economy’s central bank will back that up. It may be used to make the government the only provider of money to retail consumers. In this way, his argument is close to the one made in the Deutsche Bank article.
The Chinese digital currency, according to Mukherjee, may set a precedent. It has the potential to encourage other countries to introduce their own digital currency to compete with bitcoin and other blockchain-based cryptocurrencies. Such advancements will help to eliminate the secrecy that already exists in crypto transactions.
Does the digital yuan usher in fresh possibilities or doom decentralized cryptocurrencies to extinction? We’ll have to wait and see because it’s too early to say.
What matters most is if the execution meets all of China’s previously announced requirements, or whether it only has minimal capability (in which case the digital yuan will be useless).