The digital Yuan move aims to reduce reliance on cash further and speed up the transfer process for both the government and individuals. The People’s Bank of China (PBoC) has been working on this project for some time now. Some sources first reported its efforts to adopt a CBDC in 2014, but implementation was deemed too expensive. If you’re curious about the differences between the digital Yuan and bitcoin, read on.
However, things have changed in the last four years, with China leading blockchain technology developments and demonstrating increased regulation alongside its worries about shadow banking and debt risks.
Given the long-standing relationship between the central bank and blockchain, it was expected by the citizens that The PBoC has decided to introduce a digital currency differently and promote a decentralized digital currency rather than creating one centrally controlled by Beijing. However, regardless of the implementation process, it is evident that China’s digital currency is attached to blockchain technology, giving many new opportunities.
Central Bank digital currency:
The central bank is likely to proceed with the distribution of its digital currency through three methods. The first method involves setting up a digital currency trading centre in Shanghai. The second method will involve a direct investment by the PBoC into blockchain technology and development, with each participating central bank having access to the project’s proceeds. Lastly, the PBoC will also be able to buy its digital currency on the market at a fixed price.
Currently, there are no initiatives from other countries regarding their CBDCs. However, we can expect several European countries to follow China’s example as they begin implementing their fiat cryptocurrency or financial technology and consider digitization and blockchain technology issues.
Goals of digital Yuan:
According to the PBoC, its digital currency is designed to provide a direct clearing and settlement method for cross-border payment settlements for all financial transactions. However, the PBoC is concerned about international money transfers since these can sometimes take longer than regular bank wire transfers, especially when more parties are involved.
The digital currency, dubbed DCEP, is continuously used for fiscal payments between business agents and consumers. It will also be used for interbank payments so that the PBoC can control domestic financial supervision.
Meeting the needs of the modern world:
China has not been isolated from the global financial crisis. On the contrary, they are one of the first countries to adopt a stimulus program that helped restore its economy by injecting massive amounts of money into infrastructure projects. In addition, the PBoC’s CBDC will be able to provide credit and liquidity to the modern world by aiding with capital inflow and outflow.
An advantage can be seen in data management since blockchain technology ensures secure and automated processes, making it easier for countries to regulate their market and track data without any problems. Transparency is also an essential aspect in which blockchain technology can help China. However, it is still being tested by the PBoC, and we don’t know how well its central bank digital currency will integrate into the real world.
What is the use case of digital Yuan in daily life?
Shopping:
Currently, the PBoC is in its implementation phase for the CBDC. So we don’t know how much the authorities will roll it out to retail outlets and how it will affect consumers. However, there are signs that the central bank is keen on cutting down the middleman (i.e. retailers) and making this process faster for individuals and businesses.
A digital currency is expected to significantly lower your transaction costs and save you time by reducing your use of cash, even if you are not transferring large amounts of money overseas at a time.
Real estate:
The PBoC has been studying real-estate transactions relating to its digital currency. As stated before, China is facing a significant housing crisis that has negatively affected individuals and businesses. Therefore, it comes as no surprise that the PBoC is looking into ways in which it can help with this issue by implementing a digital currency.
We are still unsure how this digital currency will factor in during real estate transactions, but utilizing blockchain technology for any transaction would significantly reduce costs for both retail outlets and buyers. Transaction speeds:
Blockchain technology has been around for over a decade, and the central bank has been thinking about implementing its digital currency for quite some time. However, it is one of the first banks to consider using blockchain technology to improve payment systems and ease money transfers.
It could provide an even better service to those with problems with international wire transfers as they involve long waits and slow transfer times. For example, upgrading your home, or purchasing a new car, can quickly be done when you are already digitized due to the speed at which you can download your payment information onto your transactions database.
Paying bills:
A digital currency can significantly reduce the cost of paying your bills. The number of companies with international payment services could decrease by 80% once a digital currency is introduced, which would likely facilitate faster, cheaper and more secure processes. However, it comes with a significant risk that the central bank is battling, which relates to anti-money laundering (AML) trackers and real-time monitoring.