China aims to take over the US dollar in the global financial system with its digital currency. Despite the country’s big ambition for the digital currency, analysts suggest the opposite.
China digital currency currently under trial
China has started the trial of its digital currency in four Chinese cities earlier this year. CNN reported the total transactions have exceeded 2 billion yuan ($300 million). China might even turn into the most powerful economy in national digital currency with a nationwide expansion of the digital currency. The record might even beat the European Central Bank’s soon-to-be-launched digital euro.
More about the digital currency
The digital yuan is more or less similar to cryptocurrency. Quoted from CNN, deputy governor of the central bank, Fan Yifei explained that a digital ledger records every transaction. Hence, it is also possible to trace certain transactions through a digital ledger. It also automatically replaces cash that is already in circulation. However, this becomes another issue for China’s digital currency.
The digital yuan gives information on people’s location and their spendings to the government. This is the opposite of digital money’s original intentions. Bitcoin and other digital currencies protect their users from certain organizations’ control by relying on a decentralized blockchain.
However, Frank Xie of the University of South Carolina Aiken stated that “the state’s surveillance and control over the economy and society” can enhance “the centralization of authority. That may be the fundamental reason why it has been strongly pushed and rushed by the state.”
China’s big plan: to grow digital yuan’s currency on the international stage
Currently, there is no definite reason why the country developed digital yuan. However, CNN noted that China and the United States’ tensions show that the digital currency might be able the former country’s economic risks. Take for example if the United States ends up banning the whole of China using SWIFT. This will further restrict Chinese people from moving money around the global banking system. Digital yuan can then resolve it through cross-border transactions. Thus, the digital yuan is expected to break the US dollar monopoly while growing its presence in the international stage.
Unfortunately, realizing this might be harder it sounds. While the US dollar accounts for 88% of international transactions, the yuan only comprises a little over 4%. Furthermore, the digital yuan itself is still losing from mobile payment services in its home country. Less private transactions are also other concerns within the digital yuan. China’s big plan, after all, could be much more complicated to achieve.
Read also: China to Send COVID-19 Vaccines Around the World
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