A thousand years ago, when money was in the form of coins, China invented paper currency. Now the Chinese government is minting cash digitally, rethinking money that could shake the pillars of American power.
It might seem like money is already virtual. Credit cards and payment apps like Apple Pay in the US and WeChat in China eliminate the need for bills and coins. But these are just ways to transfer money electronically. What China is doing now is converting the very means of payment into computer code.
Cryptocurrencies like Bitcoin have foreshadowed a potential digital future for money, although they exist outside of the traditional global financial system and are not legal tender like government-issued cash.
The Chinese version of the digital currency is controlled by its central bank, which will issue new electronic money. This is expected to give the Chinese government extensive new tools to monitor its economy and people. By design, the digital yuan negates one of the main advantages of Bitcoin: anonymity.
China is converting a means of payment into a digital code, according to The Wall Street Journal
The Chinese digital currency is controlled by China’s central bank, which will issue new electronic money. By negating one of the benefits of bitcoin — user anonymity — digital currency will be China’s tool to control its economy and people. Beijing also intends to use the yuan domestically and is developing it so that it is not tied to the dollar-dominated global financial system.
China is accelerating the adoption of its digital yuan, NikkeiAsia notes, citing Caixin. Since October, several cities, including Shenzhen, have used digital currencies in ongoing pilot programs.
Last week, China’s central bank carried out a one-day pilot program allowing Hong Kong residents to use the regulator’s digital currency to pay for purchases in neighboring Shenzhen (a city located on the border between the SAR and Guangdong province in southern China).
The April 6 event shows the NBK’s interest in expanding digital currency testing. Until now, its use has been limited to retail payments in mainland China. The Hong Kong Monetary Authority (HKMA) reported that a digital yuan test is being prepared for cross-border payments in cooperation with the NBK.
Over the next few years, NikkeiAsia notes, in line with a plan released in August by China’s Ministry of Commerce, it envisages expanding digital yuan testing in several regions, including the Guangdong-Hong Kong-Macau Great Bay Area.
The pilot program is aligned with China’s recently released five-year economic and social development plan for 2021-2025. This plan provides for “ongoing support for digital currency research and development.”
Analysts and LATOKEN specialists think that even China’s unconditional leadership in this area does not guarantee it an advantage in international settlements: the physical yuan’s exchange rate, like the digital one, cannot be called freely convertible.
Besides, the possibilities of using the digital yuan are still limited to payment for goods and services. At the same time, decentralized cryptocurrencies already allow using a wide range of financial services, including obtaining loans, insurances, etc.
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